In early 2023, private-equity executives were stressing over falling private-asset valuations, a tough fundraising environment, and the outlook for the rest of the year.
They were right to worry. In 2023, private equity’s capital flywheel malfunctioned, setting the stage for a brutal 2024 during which the fundraising skid has continued and general partners are fighting fires in portfolios.
But, according to a new report, this too shall pass and when it does, the private-market party will pick up again.
Private market assets under management are expected to grow at more than twice the rate of public assets — 9 percent to 10 percent — and reach $60 to $65 trillion by 2032, according to research by Bain & Company, the consultant to the private-equity industry and its stakeholders. If that forecast becomes reality, private assets will account for 30 percent of the total in eight years.
A major driver behind that growth is investors chasing returns. Profitability from public markets has fallen by half, so wealth managers are investing more of their client capital in private assets.
Bain estimates that institutional investors — pension funds, endowments, foundations and other organizations — will increase their allocations to alternatives by 10 percent up until 2032, boosting AUM to at least $60 trillion. But retail investors are comparatively shoveling money into those asset classes. Retail's share of the total is estimated to rise from 16 percent in 2022 to 22 percent in 2032.
“Individuals are drawn to the alternative asset market by the prospect of diversification and higher returns and are therefore willing to tolerate lower liquidity. In response to this demand, leading companies have launched innovative offerings such as intermittent liquidity products for retail investors,” Markus Habbel, global head of Bain’s wealth and asset management practice, said in a note about Bain’s research.
Asset managers are eager to expand their menu of alternative investments to appease would-be limited partners and because they can charge more for these strategies. Bain estimates that fee revenue for private market investments will double to $2 trillion by 2032, with private equity and venture capital remaining the largest categories. Private credit is expected to grow 10 percent to 12 percent annually and infrastructure growth will likely maintain a 13 percent to 15 percent pace over the next decade, according to Bain.
“Wealth and asset managers are now favoring private markets because the business models that have dominated asset management for years have nearly run their course. Private assets constitute a much larger market than public assets and offer potentially higher yields, diversification, and in cases such as real estate — a hedge against inflation,” Habbel said.
