We live in times of great change, and the global economic landscape is more closely intertwined than ever. Not only do global shocks such as the pandemic and the impending effects of climate change cast long shadows, but the effects of local or regional factors are felt around the world like never before.
Higher interest rates, pressures on public finances, energy supply shocks and energy transition, fractured supply chains – all of these and more are forcing changes in the way industries and infrastructure are funded according to a recent State Street Private Markets study. More than ever, the private sector must play its part.
Thankfully, the increased liquidity of private assets through diversified fund structures, as well as enhanced data and reporting requirements, will open new distribution channels for private markets. As that trend takes hold in the US, private debt growth is set to continue as a wider range of company types enter the fundraising market.
Regulations, for example the Securities and Exchange Commission’s Private Funds Advisor Rule, will increase the frequency and consistency of data flows between private asset managers and investors. That rule is currently being upheld in US court and going through an appeal process, but its existence, alongside others, is symptomatic of a strong desire among lawmakers to increase the availability of private assets in relatively liquid fund structures, and will give investors a greater stake in more liquid portfolios in the future if permitted to be implemented.
Simultaneously, legislation is encouraging private-sector investment in US infrastructure. In State Street’s recent survey exploring which regions and sub-asset classes of private markets were likely to see increased investment, the top choice for respondents in all regions globally was infrastructure in North America.
A demand for better data from institutional investors has been met, in part, by new regulatory moves, and one knock-on effect is that the clearer picture of risk and reward that data supports is accelerating the influx of mass affluent individual investors and other pools of capital. This, in turn, is driving the development of more flexible product structures to provide the transparency, liquidity and flexibility such investors need.
Legislation encouraging private-sector investment in US infrastructure has already led to an increase in projects, and the survey shows it to be a key factor underlying a positive attitude towards the region as a growth area for investment.
That regulatory shift to encourage private capital is becoming a global trend, and Europe is developing its own tools to catch up. The European Union’s European Long-Term Investment Fund (ELTIF) 2.0 and UK Long-Term Asset Funds aim to provide a similar liquidity function, enabling funds and their investors to make up a greater share of European private markets fundraising and distribution.
Though in its early days, the European market is showing promising growth. Respondents to State Street’s survey see a greater role for this form of wrapper. Some 17 per cent believe that “retail fund-like vehicles” would make up the majority of flows into private markets over the next two to three years.
To read the in-depth analysis of trends driving fundraising and capital allocation across North America, Europe and Asia Pacific, and explore the interactive infographic of regional funding and deal flows in State Street’s 2024 Private Markets Study, click here.
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