Asset Management’s Biggest Winners and Losers Will Be...

Private markets will account for one-third of the industry’s revenue by 2024, according to Casey Quirk. But active equity funds will feel more pain.


Asset managers that don’t have private markets funds should worry. That’s because by 2024, 32 percent of the global asset management industry’s estimated $424 billion in revenue will come from private markets, according to strategy consultant Casey Quirk, a division of Deloitte.

Between 2019 and 2024, Casey Quirk estimates that the industry’s revenue of $339 billion will increase at a 4.6 percent compound annual growth rate. Private markets now represents 28 percent of revenue, according to Casey Quirk’s annual forecast of the drivers of global asset management industry revenue growth.

Private markets include private equity, buyouts, venture, mezzanine, private debt, real estate, infrastructure, and natural resources.

“The industry is still growing, even if not at an astonishing pace. But we still see a change in economics because of the shift between different product types,” said Tyler Cloherty, head of Casey Quirk’s knowledge center. “There’s a reduction in revenue from active equity funds and hedge funds relative to private markets. Investors are going to where alpha is available and managers are responding.”

The asset management industry has been facing headwinds for a decade, in part because of the ascendance of lower cost index funds as well as impossible-to-combat trends like an aging population that is downshifting on risk and loading up on fixed income and other funds. At the same time, investors seem to have an unending appetite for alternative investments like private equity and venture capital.

Multi-asset funds, which Casey Quirk calls “solutions,” are also a bright spot for asset managers. While the revenue from private markets is expected to grow at 7.9 percent annually until 2024, revenue for these funds is projected to increase annually by 4.5 percent. The potential growth of the solutions category pales next to private markets, but it’s still the second-most-promising category, according to Casey Quirk’s global demand model.

All categories of passive portfolios are expected to gain $2.3 trillion in aggregate net new flows between 2019 and 2024, Casey Quirk predicted, while fixed income will gain $2.2 trillion. Private markets will attract $0.8 trillion, and the solutions category will pull in $1.7 trillion. Hedge funds will get aggregate net new flows over the five years of a paltry $0.1 trillion, while active equity will lose $2 trillion by 2024, according to Casey Quirk.

“Investors are being a bit more focused on alpha-beta separation in their views of where they want to place their bets,” said Cloherty. “There’s still a willingness to seek [alpha] in fixed income. You see that in the inflows into active fixed income. In equity, though, there is a shift to private markets, where alpha and beta [are] not as easily separated.”

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Equities strategies will represent 21 percent of the industry’s revenue in 2024, down from 24 percent currently, Casey Quirk predicts. Fixed income and solutions funds will each represent 16 and 13 percent, respectively (the same percentage as in 2019). Revenue coming from hedge funds will drop from 12 percent in 2019 to 11 percent in 2024, according to Casey Quirk’s forecast. Passive, while growing quickly, will only contribute 7 percent of revenue, as passive funds are a low-margin product.

For traditional managers moving into private markets, there are some risks, Casey Quirk warns.

“We’ve seen asset managers exhibit herding behavior,” said Cloherty. “It’s not as easy as it seems to move into private markets. From an operating model perspective it requires a lot of changes, especially with the compensation structure,” he added.

Cloherty explained that to attract talent, managers need to offer carry, or incentive compensation, for private markets professionals. It can be challenging to manage teams within the same organization that are paid differently.

Although Cloherty said return expectations for strategies like private equity could be cut as assets in the category balloon, that theme hasn’t cut into flows.

“Because it’s private and long term, you don’t know what fully realized returns will be far in the future,” he said. “You’ve postponed the moment of truth.”