The investment landscape is witnessing a significant transformation as private markets, traditionally dominated by institutional investors, are increasingly opening their doors to retail investors. This shift represents more than just a trend—it's a fundamental change in how everyday investors can access alternative investments.
Rising retail interest
Research reveals that 97% of asset management professionals report strong or moderate interest from retail investors in private funds. What's particularly striking is that 86% of respondents expect alternative investments to become a significant portion of retail investors' portfolios within the next five years.
Key motivators: returns, diversification, and risk management
The driving forces behind this surge in interest are multifaceted. First and foremost, the potential for higher returns stands out, with 64% of respondents citing this as the primary motivator. Historical data supports this enthusiasm, showing private market funds consistently generating superior returns compared to their public counterparts. For instance, private equity funds have outperformed public equities in every vintage year by an impressive 1,079 basis points.
Diversification benefits and risk management also rank highly among investors' motivations, cited by 53% and 47% of respondents respectively. This makes sense given that private markets typically demonstrate lower correlation with traditional investments and often show greater resilience during periods of market volatility.
Asset classes and emerging trends
The asset classes attracting the most interest are diverse, with private equity leading the charge at 67%, followed by real estate at 55%. Hedge funds, venture capital, and infrastructure investments are also gaining traction, reflecting a broadening appetite for various alternative investment strategies.
Challenges and opportunities ahead
However, this democratisation journey isn't without its challenges. Regulatory limitations, high investment thresholds, and liquidity concerns continue to present obstacles. The industry is responding through technological innovation and regulatory evolution, with initiatives like the revised European Long-Term Investment Fund (ELTIF 2.0) designed to increase accessibility for retail investors.
The future of private markets
As we look ahead, the convergence of improved technology platforms, greater transparency in performance data, and lower minimum investment thresholds appears set to accelerate this transformation. The private markets landscape is shifting, and the retail investor is increasingly becoming a crucial participant in this changing narrative.
Download our latest research report for more industry insights!
Our comprehensive Global Custodian research report, Leading the shift: Transforming private markets in a retail-driven landscape, offers an in-depth look at how private markets have become a major focus for retail investors seeking diversification and higher returns beyond traditional investment options.
We gathered insights from 117 senior executives, including C-suite leaders and portfolio directors, from firms managing assets ranging from $1 billion to over $50 billion, offering a comprehensive industry perspective on the shifting dynamics of private markets.
