Bain & Company has officially published results from its latest research, a research where it is claimed that private market assets under management (AUM) will grow more than twice the rate of public assets, reaching $60 to $65 trillion by 2032. Named as Avoiding Wipeout: How to Ride the Wave of Private Markets; the stated study predicts private assets to grow by a 9% to 10% compound annual growth rate (CAGR), accounting for 30% of all AUM. Talk about the whole effort on a slightly deeper level, it begins with how fee revenue for private market investments should double to $2 trillion by 2032, with private equity and venture capital remaining as the largest asset categories. Beyond that, other areas that are likely to expand into sizeable asset classes by 2032 include private alternative credit, which is expected to expand at a 10% to 12% CAGR; and robust infrastructure growth, which will likely maintain a 13% to 15% CAGR pace over the next decade. Next up, we must dig into a revelation informing us on the fact that investor demand has picked up as well, with institutional investors expected to increase their allocation to alternative assets by a 10% CAGR between 2022 and 2032, causing AUM to reach at least $60 trillion. Joining them in the mix are sovereign wealth funds, endowments, and insurance funds who are now seeking higher yields due to public market volatility and declining returns. Not just that, rising contributions from retail investors will also help the retail AUM share to rise from 16% in 2022 to 22% in 2032.
“Wealth and asset managers are now favoring private markets because the business models that have dominated asset management for years have nearly run their course,” said Markus Habbel, global head of Bain’s Wealth & Asset Management practice. “Private assets constitute a much larger market than public assets and offer potentially higher yields, diversification, and in cases such as real estate—a hedge against inflation. Our research shows there are five key areas firms must focus on if they wish to adapt.”
Keeping in mind its overarching discovery, Bain & Company has also laid down five key areas where areas asset managers should focus on, if they wish to adapt and stay ahead of competitors. These five areas include defining the specific touchpoints to work with, as well as gauging how to generate desired results. You see, companies would need to understand their starting point and ultimate ambition for private markets before making any moves. Next up, the report in question presses upon the need to develop new front-to-back-office capabilities. As for how a company can do so, they can achieve that through salesforce training, onboarding product specialists, and redesigning operations, thus making up an assortment of factors will help bridge the differences between private and public market systems. Another component a business will have to focus upon moving forward is educating their investors, as companies will be expected to communicate how investors can have sufficient liquidity, or how they can collateralize private assets.
“Individuals are drawn to the alternative asset market by the prospect of diversification and higher returns and are therefore willing to tolerate lower liquidity,” said Habbel. “In response to this demand, leading companies have launched innovative offerings such as intermittent liquidity products for retail investors.”
Among other things, there is a mandate to adapt your sales and marketing operation. We say that because new digital platforms and other distribution channels will be required to enhance brand awareness, raise funds, and offer a broader array of assets. Furthermore, businesses will also see a need to hire and train sales representatives capable of developing relationships with wealth managers and explaining complex products to retail clients. Rounding up highlights is a recommendation to improve upon M&A integration skill. To understand the significance of this particular point, we ought to acknowledge that deal activity in private markets has accelerated since 2020 considering each year, from then on, has witnessed 40 or more such transactions.
