Over the last decade, global investments in private assets have grown rapidly – and are expected to rise from $11.8 trillion to more than $18.3 trillion by 2027 according to the World Economic Forum.  Our latest expert webinar sees three industry leaders assess what’s behind this expansion.

Carne Group’s Galaxy Mayani moderated the session, which featured: Ben Leach, Head of Private Market Solutions at WTW; Conor Smyth, Founder and CEO of TritonLake; and Des Fullam, Chief Regulatory & Client Solutions Officer at Carne Group.

Since the financial crisis, investors have allocated increasing sums to private markets.

From private credit to infrastructure, and venture capital to private equity, illiquid assets are proving popular with large institutions. Now, wealth managers and smaller investors are moving in too.

This evolution has been significant, explains Conor Smyth, TritonLake. “Some of the more sophisticated investors now have 25-35% in private assets – they are following an endowments style allocation model.”

He adds that there’s also a democratisation effect: “the growth of platforms enables the emergence of private market products with the lowering of minimum investment levels. This has engaged a new cohort of investors and additional capital to GPs looking to raise capital. Now, private asset fund managers can service retail clients with opportunities they wouldn’t have seen even a few years ago.”

“Direct lending into corporate, (commercial) space has been more attractive in a high interest rates environment”

Ben Leach, Head of Private Market Solutions, WTW

Beneath operational factors, like minimum investment levels, are more powerful propellants. Indeed, as a poll in our webinar shows, better return generation and diversification are perhaps the two most important factors.

As WTW’s Ben Leach points out, “in a higher interest rate environment, direct lending into the corporate commercial space has been more attractive.” His organisation is seeing meaningfully more client interest in private credit– as well as other attractive features. This surge is due to the potential for income generation, which helps mitigate the liquidity constraints typically found in the private asset.

Looking beyond European borders, Carne Group’s Des Fullam explains that development of new fund structures have also played a material role.

“The ELTIF 1.0 was designed to support the European economy in the long run, offering retail investors an opportunity to participate in long-term investments.”

He adds that, “ELTIF 2.0 has broadened investment criteria, allowing the fund to now invest outside the European Union. Some emerging themes include the significant growth in private credit, particularly in the US middle market and other forms of US direct lending. Although European direct lending is increasing, the volume is still significantly below that of the US. This added flexibility, combined with more liquidity options, enhances the potential for a shift from public to private market funds.”

“Aside from the ELTIF, there are plenty of other vehicles that are helping build allocations – with clients using LTAFs and Scottish or English limited partnerships for example.”

With Carne Group supporting WTW’s own LTAF, there is also a prize on offer of UK defined contribution pension schemes – a rapidly growing market with traditionally limited access to private assets.

The retail aspect to DC clients speaks to one of several challenges presented by the drive to private: education.

“Investor education is very important – especially on liquidity and valuation. What will the impact be further down the line, when there’s a blip in the market, and perhaps people want to get out of their investment. Will they recall the liquidity management tools that are in place.”

Des Fullam, Chief Regulatory & Solutions Officer, Carne Group

“Education is more than a point-of-sale consideration,” agrees Leach. “It’s something that must be maintained right through the client lifecycle.”

Other acknowledged challenges, according to a further webinar poll, are distribution, regulatory borders, and liquidity.

The latter is certainly front of mind for Smith, who says, “We’re seeing more liquid, closed-ended structures like tender offer funds. There’s a danger that investors get, say, quasi private equity with quasi liquidity. It can mean you have something in your portfolio not performing the correct function.”

However, these are all challenges that can be overcome – as the industry, supported by large and experienced suppliers, moves seemingly inexorably further into private assets.

To find out more about private markets, please contact Des Fullam.

Des Fullam
Chief Regulatory & Client Solutions Officer
des.fullam@carnegroup.com