Executive preview:
In the coming months, competition for retail investor capital within private markets will intensify as alternative asset managers roll out new partnerships and special funds to address this potentially vast, still largely untapped market. But rapid growth within this still relatively opaque market also carries systemic implications.
- Investing momentum is accelerating. Retail investor capital within private markets represents one of the biggest new growth frontiers in the industry. Growth in this market – mostly discretionary and retirement assets – comes at a time when government and regulatory policy agendas around the world are calling for greater capital formation. But rapid growth in retail participation, within the still largely opaque private market world, will also bring new risks.
- Retail capital poised to reshape private markets. Private markets are becoming increasingly important to the expansion of global capital markets, in particular, as public listings fall and more companies opt to delist or remain private. To facilitate growth, asset managers and their partners are innovating new structures to provide points of access for private wealth. "Main Street" investors are becoming more important as institutional investors bump against capacity constraints in their alternative investment allocations.
- As retail money flows to private markets, liquidity risks will grow. Unlike institutional investors, retail investors expect ready access to their cash. To help, managers are launching products with periodic windows of liquidity. But in volatile markets, retail investors may run for the exits, which would exacerbate liquidity needs and the risk of potential mismatches between a product's available liquidity and what investors are expecting.
- Surging demand will increase need for suitable assets. As retail flows grow, managers will need to be agile in finding good quality assets. Deployment will become more difficult as more managers compete for limited asset supply. This may lead some managers to assume more risk by investing less prudently to capitalize on this new opportunity.
- Alternative managers eye partnerships to accelerate the retail opportunity. A wave of recent collaborations is blurring the lines between public and private markets, combining the scale and distribution of traditional asset managers with the specialist capabilities of alternative players.