Private market capital is estimated to grow by 30% over the next five years to reach $24 trillion, PitchBook’s Navina Rajan told the Morningstar Investment Conference in London.
Popularity of private markets is growing and with more product innovation and changes to regulation, investors are increasingly gaining access to areas of the markets.
Speaking at a panel on the evolving market structures shaping investment vehicles, Rajan, senior analyst, EMEA Private Capital at PitchBook, said private capital is currently estimated to be worth $19 trillion globally, having grown around seven times over the past decade – and is set to grow 30% in the next five years. Large parts of this will be in private credit and private debt, PitchBook’s research has found.
Market needs to be stress tested
The convergence of public and private markets was a key topic of debate at the conference. In an earlier CIO debate, panelists said that client interest in private products is strong, but liquidity is not where it should be, and the market has not yet been stress tested.
Also speaking at the panel, Neil Mehta, head of new markets at alternative asset manager Apollo, called the convergence of private and public markets the “next transformation of the industry”.
“It’s forcing a rethink what is public and what is private, what is safe and what is risky. Many of us have went through multiple cycles. We’ve seen that public doesn’t necessarily have to be safe. Public doesn’t necessarily have to be liquid - anyone that’s lived through LDI here knows exactly what that means,” Mehta said.
He added that the industry is at the beginning of a product renaissance across funds, ETFs, LTAFs and mutual funds.
State Street recently partnered with Apollo for a private credit ETF. Mehta noted that two of the key challenges the ETF seeks to address are liquidity and complexity. As such, to address liquidity, he believes there should be an open architecture marketplace where the private credit market making playbook can be photocopied for every dealer interested in joining.
“That ease of experience [buying the ETF], we think, is going to be important for clients as well.”
Pascal Nguyen, head of portfolio management EMEA for the alternative portfolio solutions at BlackRock, added that new vehicles come with a lot of promises, but also a lot of work and complexity. This highlights the need for strategic asset allocation, implementation and a focus on liquidity needs, whether it is an ETF or an LTAF, with direct investments or a fund of funds structure. Paying for multiple layers of fund fees could also be a drag on performance.
“If I could give one disclaimer, it’s the education of your clients. Under the hood, you have private investments, and they follow the physics of private investments. It’s a long hold period. They’re really good but they take a long time.”
Vikram Bhandari, head and CIO of Schroders Capital Solutions, added that the practicalities come at a cost, and this cost could be liquidity. “There’s something for everyone. It may not be perfect and one size fits all, but the market has come a long way and the regulator has come a long way.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
