The value of global private markets funds is expected to reach $24trn (£17.9trn) in the next five years amid surging demand from pension funds around the world, an increase of more than 70% on current levels.
As of the end of September, private markets globally had more than $14trn in total assets, according to research from Ocorian, a fund and asset servicing company.
This total is led by private equity, with $9.9trn in assets, while real estate funds are estimated to hold just under $1.5trn.
Over the next five years, growth is also expected to be led by private equity, but infrastructure and private debt funds are also forecast to grow substantially – even overtaking real estate in total assets.
Global private equity fund assets are expected to total $17.4trn by 2030, while private debt is expected to be the second biggest private markets asset class with $2.4trn.
US-based private equity professionals surveyed by Ocorian said they expected new investments to be led by family offices and pension funds.
The research comes as UK pension schemes are being encouraged by policymakers to invest more in private markets. The Mansion House Accord, signed by 17 major pension providers in May, is a pledge to allocate at least 10% of portfolios to private markets, half of which will be ringfenced for UK investments.
Managers expect consolidation as private markets sector matures
While total assets are forecast to grow significantly, Ocorian said it expected this growth to trigger consolidation among asset managers as “mainstream” providers increasingly seek to access private markets.
Yegor Lanovenko, global co-head of fund services at Ocorian, said: “The decade ahead will be transformational for global asset management. By 2030, private assets could expand by more than 70% to almost $24trn, with structural shifts across investor profiles and how private markets products are distributed.
“We are seeing a handful of global managers consolidate fundraising power, while new channels… are reshaping investor engagement. For mid-market managers, this intensifying battle for distribution makes strategic partnerships, operational leverage and specialisation vital.”
Recent separate research from Carne Group found that private debt managers are also expecting consolidation in their sector, citing growing pressures from regulation, operational challenges, and shifting deal activity that are reshaping the sector.
Regulatory spotlight intensifies with more interventions predicted
Ocorian’s survey also reported growing concerns about “regulatory creep”, as regulators respond to the growing popularity of private markets investments. The vast majority of respondents (85%) said they expected more regulation, while even more (88%) expected more industry restrictions and fines to hit the private markets space. Four in five (80%) said they anticipated more time spent on compliance failures.
UK regulators are beginning to pay closer attention to private markets. Earlier this year, the Financial Conduct Authority (FCA) called for asset managers to improve the independence of private markets valuation processes following an industry review.
The watchdog assessed firms investing in private equity, venture capital, private debt, and infrastructure assets. It found that, despite good practice demonstrated in many areas, managers needed to improve valuation processes.
In particular, the FCA highlighted the management of conflicts of interest as a key area for improvement, as well as the way in which valuations are carried out during times of market disruption.
