DC schemes and wealth channel to propel $8tn growth in private markets by 2023
Global private market assets are forecast to grow by $8tn (£6.3tn) to more than $21tn by 2023, thanks to increased allocations from defined contribution (DC) schemes and wealth managers.
New research from fund administrator Carne Group surveyed 201 US and UK investment managers representing a combined $1.93tn in assets under management.
The democratisation of private markets was cited as a significant driver of the industry’s growth in the report.
Of those surveyed across the UK and Europe, DC schemes expect their sector’s level of investment into private markets to increase by 10 per cent over the next three years.
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And wealth managers said they expect private market investments to account for around 11 per cent of their sector’s assets under management by 2030, up from five per cent in 2021.
Innovative fund structures, such as the Long-Term Asset Fund (LTAF) in the UK and the European Long-Term Investment Fund (ELTIF) in the EU, are also expected to propel growth in alternatives.
88 per cent of wealth managers said they expect the level of investments into private markets to increase over the next three years thanks to LTAFs and ELTIFs, with 28 per cent forecasting that increase to be ‘dramatic’.
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DC schemes had a similar outlook, with 78 per cent predicting increased use of the two vehicles for private markets investments and 31 per cent expecting a ‘dramatic’ rise.
Global opportunity
Fund managers globally are tapping into this opportunity. 88 per cent of US-based managers are already raising capital for private market funds in Europe and half of the remaining 12 per cent have plans to do so.
And 94 per cent of UK managers said they are currently investing in European markets, with the remainder planning to do so within the next 12 to 24 months.
However, managers in both the US and Europe cited challenges facing private markets.
Read more: LTAFs look to diversify private markets exposure with multi-asset focus
US managers cited corporate governance as their key obstacle to European fundraising, followed by regulation. 78 per cent think that EU rules around private assets are more complex than their US equivalents, while 68 per cent believe that navigating these rules will become even harder in future.
UK managers see the regulatory environment as the greatest challenge to successful fundraising and fund launches. This also comes with costs, as 68 per cent expect to spend between 25 per cent and 50 per cent more over the next two years to fund increased regulatory compliance requirements.
And despite growing demands for ESG-friendly investments in Europe, ESG regulation in the region was cited as a particular hurdle by 77 per cent of all managers.
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“Amid increasing demand from wealth managers and DC pension schemes to drive greater, more sustainable returns for their clients, the democratisation of private markets is a rapidly growing and attractive opportunity for asset managers globally,” said John Donohoe, chief executive at Carne Group.
“While the flow of retail and pension capital into previously inaccessible markets must of course be accompanied by appropriate safeguards to protect investors and their assets, our research underlines that the current regulatory environment in Europe is proving difficult for many asset managers to navigate – and may in fact become a barrier to these products entering the market.
“Managing liquidity, ensuring appropriate pricing, ESG scrutiny and novel fund structures present challenges for all investment managers looking to scale private market propositions in Europe. This issue is particularly acute, however, for US asset managers looking to launch outside of their home market in a less familiar and more fragmented regulatory environment.”
