Asset managers must shift their focus to private markets if they want to remain competitive, according to a new report from Bain & Co, with the consultancy firm warning that traditional models centred on public markets are becoming outdated, according to a report by Bloomberg.
With public markets margins margins plummeting from 15 basis points in 2007 to just 8 basis points in 2022, fund firms need to overhaul their strategies and invest heavily in the capabilities required to succeed in private markets, Bain argues.
Markus Habbel, head of Bain’s global wealth and asset management practice, describes this shift as “the biggest opportunity in financial services for the next few years.” Emphasising the urgency of acting now, he says that the window for capitalising on this opportunity is already open.
Bain projects that private-market AUM could soar to $65tn by 2032, comprising 30% of all AUM by that time. Fee revenue from these investments is expected to double to $2tn over the next decade, making private markets a lucrative area for asset managers.
Many firms that have traditionally focused on public markets are already making moves into private assets, with Bain’s report noting that the share of alternative assets held by these firms has risen from 16% in 2018 to 22% in 2022. However, there is still significant work to be done as these firms face competition not only from one another but also from established alternative-asset managers who are expanding into new areas like infrastructure and private credit.
This trend is evident in recent high-profile moves within the industry. BlackRock, the world’s largest investment firm, has launched private market funds and made significant acquisitions, including a $12.5bn deal for Global Infrastructure Partners. Similarly, Janus Henderson Group recently agreed to acquire private-credit firm Victory Park Capital Advisors, and PGIM has announced plans to grow its private-market assets by over 50% to $500bn within five years.
Despite the potential, Bain cautions that succeeding in private markets will be challenging for many firms, with significant investments in infrastructure, distribution, risk management, compliance and product innovation required. Additionally, asset managers will need to focus on reaching wealthy clients, a task that is both costly and labour-intensive.
