Private capital assets could top $21trn in value by 2030, however, UK and US investment managers say regulatory complexity remains a key obstacle to European fundraising, according to new research from Carne Group.
In its latest report, based on research of 201 investors representing $1.93trn in combined assets under management (AUM), investors estimate that the total value of global private market assets will grow by 62 per cent.
According to the study, the democratisation of private markets, as evidenced by increasing allocations from defined contribution (DC) pension schemes and wealth managers, is a significant driver of this growth.
Of those surveyed across the UK and Europe, DC schemes expect their sector’s level of investment into private markets to increase by on average 10 per cent over the next three years. Wealth managers anticipate private market investments to account for around 11 per cent of their sector’s AUM by 2030, up from 5 per cent in 2021.
Enhanced returns and ESG potential drive appetite for private assets
When considering the reasons for increasing allocations to private markets, the potential to offer greater risk-adjusted returns was a key factor.
Almost half (44 per cent) of wealth managers anticipated a portfolio with a 20 per cent allocation to private markets to deliver greater returns over the long term compared with a traditional 60/40 portfolio. Over a third (37 per cent) of DC schemes shared this expectation.
When considering their long-term allocations to specific alternative asset classes, DC schemes on aggregate expected their largest allocations to go to real estate (33 per cent), infrastructure (25 per cent) and private debt (22 per cent).
For wealth managers, the equivalent top three were real estate (21 per cent), venture capital (17 per cent) and infrastructure (15 per cent), followed closely by private debt (12 per cent).
Sustainability is another key driver, with 98 per cent of DC schemes and 96 per cent of wealth managers agreeing that private markets enabled investors to make more of an ESG impact than investing in public markets.
Almost all (94 per cent) of the UK managers surveyed are currently participating in European markets, and the remainder which are not, intend to do so within the next 12 to 24 months.
Regulatory challenges
However, there are a number of hurdles investment managers on both sides of the Atlantic need to overcome to fully seize the $8trn private markets opportunity, with both UK and US investment managers raising particular concern around European regulatory complexity.
Regulation was cited as a key obstacle to successful European fundraising by US managers, second only to concerns around corporate governance.
More than three-quarters (78 per cent) agreed that EU regulations around private assets were more complex than their US equivalents, while 68 per cent believed that navigating these regulations would become even harder in the years ahead.
Among UK managers, the regulatory environment was identified as the greatest challenge to successful fundraising and fund launches.
Its complexity also translated into a commercial challenge, with the majority (68 per cent) expecting to spend between 25 per cent and 50 per cent more over the next two years on resources dedicated to managing regulatory compliance.
