Private markets to see significant momentum says State Street

The next three to five years will see a surge in demand from asset owners and managers

Private markets to see significant momentum says State Street
Steve Randall

Private market assets are to experience notable investment growth in the next few years according to a survey of asset owners and managers.

Asset managers expect to increase their median allocation to private market assets from 30% to 35% in the next 3-5 years, while asset owners plan an increase from 22% to 28%.

This growth will be driven by diversification from listed markets and better opportunities to generate returns. Among asset managers, 40% see private markets as an attractive and/or stable source of yield.

However, the State Street survey reveals that this growth is tinged with barriers, led by concerns about weak standards of accounting and audit controls (64%).

High management fees compared to public markets (60%) and lack of uniform data standards (58%) are also a concern.

Changes required

Asset managers will need to improve their data management and reporting processes and adopt more sophisticated technologies if they are to satisfy investors’ expectations and drive investment growth in private markets.

“Having a single, unified data management platform to manage data across the front, middle and back offices, is no longer a ‘nice to have,” said Paul Fleming, global head of State Street's Global Alternatives Segment. “It will be what differentiates the trailblazers from their competition in private markets for years to come.”

Sixty-eight of asset owners said there is a significant opportunity cost to working with private markets data and want a higher quality data provisioning service, while 58% say data management and data quality validation is now part of the due diligence process for manager selection.

ESG is a key decision factor with 61% of asset owners expressing interest in more sustainable investment options.

Future is bright

Overall, the survey reveals that sentiment among asset managers and owners is high regarding the future for private markets.

“It’s interesting to see that respondents remain largely optimistic about the future of private markets investments, and private market managers expect to see greater diversity of investors turning to the asset class in the near future; however investors in both public and private markets are realizing the risk and inefficiencies created across their bespoke front, middle, and back office solutions” said John Plansky, head of State Street Alpha. “With the right technology and partners in place, asset managers will be better equipped to overcome the challenges of private markets and maximize value in the market boom still to come.”