But do institutions see greater participation of retail investors?
Private markets saw a slowdown in 2023 but the current trend of increasing private market allocations in the portfolios of institutional investors looks set to continue and intensify.
A global survey of institutional investors including traditional asset managers, private market managers, insurance companies, and asset owners, reveals that 36% of respondents already allocate more than half of their portfolio to private markets, but in the next 3-5 years this is expected to rise to 41%.
State Street Corporation’s poll of 480 investors also found that almost six in ten respondents already allocate at least 30% to private markets and by 2028 this will exceed seven in ten. Reduced exposure to public markets will free up funds to increase their private market holdings.
“The great rotation from public to private markets is not slowing down, with investors set to allocate more to private assets than ever before,” said Donna Milrod, executive vice president and chief product officer at State Street. “This increasingly sophisticated private market universe means the current economic environment, coupled with investors’ desire for wider, more diverse avenues of capital, is making private markets attractive now and for the foreseeable future.”
The main focus areas of private market allocations are infrastructure and private debt with 71% of respondents planning to increase allocations to these in the next year or so.
But private equity is set for a rebound with 73% of poll participants planning to boost their allocations to the asset within 3-5 years.
Inflation bets
Most respondents believe that inflation has now peaked in their respective local markets, but they think it may be longer than two years before rates have fallen back to within central banks’ target ranges.
Firms are facing macro challenges to fundraising, leading to delays, and this is necessitating increased diversification, investment in risk management, and reducing risk exposure with 43% exploring fresh market niches, 38% enhancing risk management processes, and 34% reducing risk to protect against downside.
“Overall, while demand for private market assets continues to grow, investors are also experiencing a tightening supply of quality deals and express that borrowing costs can be an issue for them,” said Scott Carpenter, global head of Private Markets & Credit at State Street. “Central bank decisions on rates and the state of inflation will heavily influence opportunities and investing behaviours over the next couple of years.”
Respondents also highlight the potential for AI to significantly improve private markets operations and improve the industry’s historic deficiencies in quality private market data.
Retail investors
Asked about increased participation in private markets by retail investors, 54% believe current investment products do not make the asset classes suitable for retail investors, while around half (49%) believe there is strong demand for access to private markets among retail or DC investors.
