Around the world, investors are looking for productive, profitable places for their money – and many are turning to private markets. This is being driven by a combination of factors. Not least among them is the fact that changes in public policy legislation are shifting investment flows and opening up new opportunities. Governments are seeking to boost their economies via industrial strategy, expansionary fiscal policies, derisking, and by driving private capital into domestic industries in a way that reflects their strategic priorities – particularly around net zero.
This is fortuitous for all private market asset classes.
State Street is the leading source of intelligence and insight for private markets, providing clients with valuable information and analysis into the world of investment. The company services ten percent of the world’s assets, including providing advice to central banks, insurance companies and other major financial institutions.
The next five years will be a key time for private markets, according to our latest study on the Future of Private Markets, From headwinds to tailwinds. A majority of the nearly 500 institutions we surveyed say they will be increasing their exposure in infrastructure, private debt, and private equity over the next two years, while all of those surveyed said they would do this across these areas and real estate in the next five years.
One of the trends driving investment in private markets are changes to public policy. The Infrastructure Investment and Jobs Act in the US means the government is investing $1.2 trillion in sectors including high-speed internet, transport infrastructure and energy. This is expected to be followed by similar legislative and investment packages in Europe. At the same time, private market investments are expected to grow to nearly half the portfolios of institutions while the proportion of public market allocations is expected to fall. Beyond this, private assets are starting to be treated more like public assets in how they are assessed, measured and marketed.
The sector is also still responding to the macroeconomic and geopolitical challenges that have emerged in recent years. While 61 percent of respondents believed inflation in their region had peaked and was going to continue to fall, only 47 percent believed it would reach the level policy-markers are targeting. Respondents from the Asia-Pacific region were the most pessimistic, with only 10 percent of Chinese respondents saying inflation had peaked and 65 percent of respondents across the whole region saying borrowing costs would remain high. The impact of this means that private market deals are experiencing more delays, with 55 percent of deals being delayed by up to a year.
In response to this changed environment, institutions working in private markets are focusing on strategic, long-term planning. They are highly focused on the measurement of risk in assets. While just under half (45 percent) say they are struggling to justify investment in relatively high-risk assets, nearly a fifth are planning to increase their risk in order to raise returns. Across the sector it is recognised that there is a need for better access to data and technology to facilitate an improved measurement of risk.
With global and domestic trends shaping the future of Private Markets, it is vital to get good quality information on both the market itself and the organisations working within it. State Street brings the knowledge and experience of the sector across different jurisdictions and countries as investors, governments and institutions navigate the changing global environment.
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