Traditional and alternative asset management are becoming less black and white as more insurers and high-net-worth investors seek integrated, total portfolio solutions that blend public and private assets.

This “great convergence,” accelerated by new vehicles like semi-liquid funds, could unleash up to $4 trillion in “money in motion” over the next five years, according to new research by McKinsey, forcing managers to partner or acquire new capabilities. 

McKinsey also sees a recalibration toward local investing and the mainstreaming of active ETFs as other major trends driving the asset management industry. Combined, these trends will result in up to $10.5 trillion that’s up for grabs for the managers able to capitalize on these shifts. 

“We are starting to see a true blending of privates and publics within the portfolio,” McKinsey Senior Partner Ju-Hon Kwek told Institutional Investor. “A lot of managers are moving beyond a 60-40 to a 60-20-20 allocation.” 

Kwek, who co-authored the report, said this blurring of the lines between public and private markets “has been going on a long time.” In 2014, the consulting agency called it the “trillion-dollar convergence.” But since then, Kwek has seen “visible acceleration in the trend.”  

This convergence is already happening in the insurance space, according to Henri Torbey, co-head of McKinsey’s North American asset management practice and co-author of the report. 
 
“Insurers are increasingly thinking about ways to leverage their asset management to create value in their portfolios,” Torbey told II, noting that insurance investors can optimize their portfolios by embedding private and public in one mandate.  

As Torbey explained it, this convergence began with ultra-high-net-worth clients before expanding to the HNW segment via semi-liquid vehicles like BDCs. The mass-affluent market is now opening, but the largest opportunity lies with HNW and affluent investors, as the UHNW space is already saturated. Growth in the mass market will be slower due to the gradual and fee-sensitive nature of defined contribution plan adoption. 

“We are at the early innings of a big phenomenon,” Torbey added.  

While the asset management industry has rebounded to a record $147 trillion in global assets as of June 30, the authors argue that profitability remains challenged. Future success will not come from traditional advantages alone but from the ability to navigate this convergence through strategic partnerships, product innovation, and operational efficiency, they said. 

“These two worlds are beginning to blend as public and private investing increasingly overlap, and as private capital managers penetrate deeper into wealth, defined contribution, and insurance channels,” the report states. “This convergence is showing up in dealmaking and partnerships across the public/private divide and through innovations such as semi-liquid products, evergreen funds, and public–private model portfolios.”