Private market assets will grow more than twice as fast as public assets, potentially hitting between $60 and $65 trillion by 2032, according to research from consultancy firm Bain & Company.
The research projects a compound annual growth rate of 9 to 10 per cent for private assets, which would see the sector accounting for 30 per cent of all AuM by the end of the decade.
The expansion comes at as wealth and asset management firms are increasingly turning to private markets, driven by a significant drop in profitability from public markets, the firm pointed out. Defined contribution pension schemes are also increasing their private markets exposure, with Legal & General, Aegon and other providers either launching or set to launch allocations for their DC funds.
“Wealth and asset managers are now favouring private markets because the business models that have dominated asset management for years have nearly run their course,” said Markus Habbel, Bain’s global head of wealth and asset management. Private markets offer larger opportunities than public ones, with potentially higher yields, diversification, and in some cases, such as real estate, a hedge against inflation, he added.
The research predicted that fee revenue from private market investments could double to $2 trillion by 2032. Private equity and venture capital are expected to remain the dominant asset categories, but other sectors, like private alternative credit and infrastructure, are poised for substantial growth. Private alternative credit is projected to expand at a 10 to 12 per cent CAGR, while infrastructure could see growth rates of 13 to 15 per cent CAGR over the next decade.
This shift is largely due to public market volatility and declining returns, prompting entities like sovereign wealth funds, endowments, and insurance funds to seek higher yields in private markets. Meanwhile, retail investors are also increasingly contributing to this growth, with their share of AuM expected to rise from 16 per cent in 2022 to 22 per cent by 2032. “Individuals are drawn to the alternative asset market by the prospect of diversification and higher returns,” Habbel noted, emphasising that this trend is likely to continue as firms offer innovative products tailored to retail investors.
In response to retail demand, companies like Blackstone and KKR have introduced innovative offerings, such as private market funds with intermittent liquidity, allowing for monthly or quarterly redemptions.
As asset managers adapt to these changes, the report suggested that to stay competitive, firms must focus on five key areas: defining strategic objectives in private markets, developing new capabilities across operations, educating investors on liquidity and collateralisation, adapting sales and marketing efforts, and improving M&A integration skills.