The appetite for private assets is insatiable and the current confluence of factors in the marketplace means it will continue to remain so for the foreseeable future. In this context, managers are looking to rely more heavily on their service partners, especially in the realms of automation and cross asset class services to support their deeper foray into this space.
PARTNER CONTENT
The appetite for private assets is insatiable and the current confluence of factors in the marketplace means it will continue to remain so for the foreseeable future. In this context, managers are looking to rely more heavily on their service partners, especially in the realms of automation and cross asset class services to support their deeper foray into this space.
Private markets have shifted their place in investors’ portfolios to sit alongside traditional assets. This shift has happened in the larger and more sophisticated investors’ portfolios, but now the industry is seeing this expand out to all investor types.
“The increasing prominence of private markets across the board will drive growth over the next five years. We see no slowing in the appetite for good quality private markets solutions,” comments Claudia Bertolino (pictured), head of private equity and private credit, Citco Fund Services (USA) Inc.
Over the long-term, private assets have outperformed the public markets by a decent margin. As the funding gap for a number of pensions continues to be a major area of concern, pension trustees are allocating a greater part of their beneficiaries’ capital to the private markets. Bertolino also points to a concerted effort, especially in the US, to ensure the investing public at large shares in the benefits of private asset by enabling their access to the asset class.
The continued appetite for private markets is leading to growing client demands around automation and cross asset class services. As the industry scales and becomes more industrialised, operating models need to be standardised and digitised. This will allow automation to be implemented and better quality data produced as a result.
“Managers are searching for operational solutions that enable this new way of working. As macro-economic cycles shift, investment opportunities will change. We have seen this with the growth in private lending and are now starting to see it in the secondaries space. Managers will shift their investment focus to the areas with greatest opportunities and so will search for operational excellence in these areas,” notes Bertolino.
Further, investors are increasingly demanding immediacy in terms of liquidity from their private markets general partners. According to Bertolino, the GPs have responded in truly innovative fashion either through GP-led secondaries processes or by structuring their vehicles in novel ways to accommodate limited partners’ liquidity requirements. “To help service what are essentially new structures in the private markets space, GP’s have come to rely more heavily on their administration partners,” adds Bertolino.
The future growth in private markets is likely to come from a variety of sources. come from a variety of sources. Retail money will play a role in this, but the growth of institutional investment will still account for the majority of the opportunity. Therefore, the top quartile managers are likely to benefit most from this growth outlook, driving them to focus on industrial strength operating models providing best-of-breed services to both GPs and LPs. Bertolino concludes: “As the democratisation of private markets gathers pace, there will be an imperative to have the requisite infrastructure in place to support this phenomenon. Asset servicers with the financial wherewithal should seek to develop solutions to facilitate retail adoption of private markets.”
