Intel News: Asset Managers Urged to Invest in Private Markets
Key Highlights
- Bain & Co warns asset managers to shift focus to private markets to remain competitive.
- Traditional public market models face declining margins, from 15 bps in 2007 to just 8 bps in 2022.
- Private market AUM projected to soar to $65 trillion by 2032, comprising 30% of total AUM.
- Fee revenue from private markets expected to double to $2 trillion over the next decade.
Declining Public Market Profitability
The asset management industry is facing a paradigm shift, as profitability from traditional public markets continues to plummet. According to Bain & Co, management fees in public markets have declined by nearly half over the past 15 years, from 15 basis points in 2007 to just 8 basis points in 2022. This significant drop in margins has major implications for asset managers relying on public market investments as their primary revenue source.
Private Markets: The New Frontier
In response to this trend, Bain & Co is urging asset managers to overhaul their strategies and invest heavily in the capabilities required to succeed in private markets. These alternative investments, including private equity, real estate, and infrastructure, offer potentially higher yields, diversification benefits, and a hedge against inflation – making them increasingly appealing to investors.
Bain projects that private-market Assets Under Management (AUM) could soar to a staggering $65 trillion by 2032, comprising 30% of all AUM by that time. Furthermore, fee revenue from these investments is expected to double to $2 trillion over the next decade, presenting a lucrative opportunity for asset managers.
Industry Embracing Private Markets
Several leading firms are already making moves into private assets, recognizing the need to adapt to changing market conditions. BlackRock, the world’s largest investment firm, has launched private market funds and made significant acquisitions, including a $12.5 billion deal for Global Infrastructure Partners. Janus Henderson Group recently agreed to acquire private-credit firm Victory Park Capital Advisors, while PGIM has announced plans to grow its private-market assets by over 50% to $500 billion within five years.
Challenges and Competition
However, succeeding in private markets will be challenging for many firms, requiring significant investments in infrastructure, distribution, risk management, compliance, and product innovation. Asset managers will also need to focus on reaching wealthy clients, a task that is both costly and labor-intensive.
Traditional public market firms face competition not only from one another but also from established alternative asset managers expanding into private markets. This shift is likely to lead to a convergence in strategies among providers of traditional versus alternative asset products.
Learning from History
The shift towards private markets is reminiscent of past events where similar transitions occurred in asset management. For instance, the early 2000s saw a move towards hedge funds, and the post-
