SIMC20: Five megatrends will drive growth of private assets

Private markets are set to double in size in the next five years, and the industry will be defined by five megatrends, the audience were told at Schroders’ Digital International Media Conference 2020.

The need for scale and access to capital will drive industry consolidation and the rise of multi-alternative platforms, while the expansion of private markets will lead to growing demand for specialised and localised offerings.

The rising diversity of strategies will lead to increased investor demand for solutions which deliver targeted investment outcomes.

As a new investor group, individual investors will push into private markets and the true democratisation of private markets will become reality. Across the board, a focus on tangible investment impact are all set to propel the sector.

This comes amid an environment in which – 2020 aside - private assets fundraising has increased year on year from $742 billion in 2015 to $1.1 trillion in 2019. Despite the pandemic and global economic difficulties, fundraising had still already reached $640 billion by September this year[1].

At the same time, investors’ remain focused on seeking higher returns and long-term income amid today’s low rate environment. Schroders’ recent Institutional Investor Study 2020 indicated that investors plan to ramp up their allocations to private assets from 12.8% a year ago to 14.1% over the next 12 months, with 46% stating that an increase in their allocations to private assets would help manage risk.

Furthermore, despite enjoying a growing share of the asset management space, retail investors remain under allocated to private assets with the opportunity set expected to almost double by 2025[2].

Schroders’ Global Head of Private Assets, Georg Wunderlin, commented:

“Schroders’ Institutional Investor Study highlighted that investors continue to be attracted to private markets to access higher returns and income streams to meet their investment needs in a zero-rate environment.

“As the five megatrends demonstrate, private markets are at an inflection point, reaching ever broader audiences and becoming ever more diverse, while asset managers are consolidating into multi-alternative platforms.

“We continue to believe that private markets offer investors manifold opportunities in the coming years. Historical crises have demonstrated, for instance, that portfolios with significant exposure to private markets can achieve superior long-term investment performance.”

 

[1] Preqin Pro

[2] BCG Global Asset Management 2020, Willis Towers Watson Global Pension Assets Study 2016, Money Management Institute 'Distribution of Alternative Investments through Wirehouses‘.