A report from the consulting firm predicts that private markets will generate over half of global asset management revenues within five years. The conclusion is based on a survey of 300 asset managers, distributors and institutions from 19 countries and ten territories in August and September.
The base case scenario is for global asset management to rise from just under US$140 trillion of assets at the end of last year to more than $200 trillion by 2030. However, margins and profits are falling. Against this background, alternatives and private markets stand out for their profitability.
According to the report, private markets currently generate roughly four times more profit per unit of asset managed than conventional assets. By 2030, their base case share of the asset management pie is expected to rise to $26.6 trillion and yield more than half of all asset management revenues.
Naturally, this incentivises asset managers to move into private markets. This trend converges with rising assets and demand from client segments that favour private markets, notably sovereign wealth fund, high-net-worth individuals, and pension funds.
Survey respondents cite retailisation, democratisation and tokenisation as critical trends opening wider access to private markets. PwC lists blockchain and new investment structures such as European long-term investment funds as key developments. It also says that over 40% of managers view tokenisation as their most important product innovation.
Perhaps there are some interesting implications in how private markets themselves will change to accommodate this growth. If they deliver most revenue and profits to managers, will they also deliver enhanced returns to investors, and will profit margins remain as compelling?
Tokenisation and democratisation of private markets surely must lead to commoditisation and diminishing returns as more players crowd into the space, and data providers illuminate the opaque asset classes that once capitalised on hidden opportunities and unique understanding and access.
This year has already seen major asset managers and data providers pick up private market specialists. Last month, S&P Global agreed to buy With Intelligence for $1.8 billion, and in March, BlackRock acquired Preqin for $3.2 billion.
As private markets data becomes more public, margins and differential outperformance will probably be eroded. And private markets are likely to look more and more like public markets, including in their returns.
