Institutional and retail investor appetites for private assets are growing — and the asset management industry is eager to keep serving up an endless buffet of choices.
More than 80 percent of asset managers launched new private market funds during the past three years, and almost 85 percent of those plan to launch new products during the next three years, according to a report by Coalition Greenwich, which provides benchmarking and analytics for financial services firms. The company surveyed senior employees at 68 asset managers across the globe about their product development and management approaches, outlook for new products, and other related topics.
Institutions are still the biggest investors in private assets. Pension funds, endowments, and other asset owners have been racing to put money into private markets for years. Private equity accounts for about 11 percent and private debt about 4.3 percent of their portfolios in the U.S.
But some institutions allocate much more. Earlier this year, the California Public Employees' Retirement System approved a plan to invest up to 40 percent of its more than $500 billion portfolio in private assets. “Institutional investors’ embrace of private assets is having a profound impact on the asset management business, and managers are re-making their product slates to meet the new demand,” Mark Buckley, global head of investment management at Coalition Greenwich, said in a statement.
An overwhelming 82 percent of the asset managers surveyed said they launched private equity or private debt funds over the past several years. Additionally, 55 percent launched new products in alternative asset classes, such as real estate, listed infrastructure, commodities, and hedge funds. And the investment firms plan to do more of the same in the near future; 84 percent expect to launch a private equity or private debt product and 70 percent plan to launch some other alternatives product in the next three years.
Private equity and private credit are crowding out other traditional strategies. Only about half of the asset managers surveyed are planning to debut new active fixed-income products.
Meanwhile, 40 percent of firms are launching more actively-managed products and 38 percent are launching passive. When it came to active equity funds, asset managers’ business strategies were mixed. Thirty-eight percent said they were creating new active equity funds, 38 percent said the products they offered would remain the same, and 23 percent planned to offer fewer of these products.
The report also showed that how asset managers determine what product to launch. Globally, 60 percent of firms have a single team or group overseeing product development and management, a percentage that was marginally different in each region. New product development spread across various teams and parts of businesses was the model for only 16 percent of the surveyed firms.
What counts as a successful new product was obvious in the eyes of asset managers. While customer satisfaction was a key factor for only 25 percent of firms in North America, other factors might effectively serve as the same signal. Eighty-one percent considered asset flows and 78 percent considered performance as the top signs of success.
