Private markets evolving to meet market demands, finds SEI survey

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SEI has announced the results of a survey and report that explores the private markets’ evolution and perspectives on inherent opportunities. “Private Market Liquidity: Illogical or Inspired?” is the result of SEI’s strategic partnership with Preqin and ANZU Research to survey more than 400 managers (general partners or GPs) and investors (limited partners or LPs).   

“The potential for private markets is rapidly expanding as investors increasingly seek exposure to assets that have been off limits to them in the past,” says Jay Cipriano, Senior Vice President and Managing Director of SEI’s Investment Manager Services division. “Sparked by broader access and greater liquidity, the private markets are creating tremendous opportunities for managers and investors alike. Our survey provides critical insight into the shifting role of private markets, how retail is influencing their trajectory, and why the secondary market is essential to understanding the broader transformation.”
 
Several emerging trends are attracting more investors and injecting additional liquidity into the private marketplace, including:     
 
Private Markets’ Role – In search of higher returns and superior portfolio diversification, institutional and retail investors are actively seeking greater exposure to private assets. In parallel, private assets’ usefulness in portfolio construction has regulators lowering barriers and expanding access.

GPs are twice as likely as LPs to say that private markets provide excellent portfolio diversification.

The illiquidity premium is real, but it may continue to shrink as liquidity options multiply in coming years. In fact, investors surveyed are more likely than managers to argue that the premium is already shrinking.

Effect of Retail Access – Eight out of 10 GPs said that non-accredited individuals should be able to invest in private markets, giving way to widespread support for broader access to private securities.
Mutual funds and ETFs will almost certainly play a key role in allowing mass affluent investors access to private markets either directly or via their advisors.

401(k)s and other retirement plans will include more private assets and private market strategies, initially packaged in collective investment trusts and/or embedded in target-date funds to gain market share.

Accelerating Secondary Market Participation – Half of all GPs and LPs surveyed indicated they would participate in the secondary market in 2021, dramatically higher than our previous survey six years ago.  
No longer stigmatised or viewed as a less reputable version of the primary market, secondaries are successfully being used to actively manage portfolios.

A lack of transparency is preventing an even wider embrace of secondaries. More than 90 per cent of LPs surveyed said more transparency was necessary.

“The growing alignment between GPs, LPs and regulators has driven improved private market access and increased liquidity,” continued Cipriano. “To capitalise on this growth, GPs must address the myriad of operational challenges by building an ecosystem of technology vendors and service provider partners, taking advantage of the rising use of trading platforms and exchanges, and adapting to the portfolio turnover caused by LPs restructuring based on their ESG and diversity and inclusion values.”