In recent years private capital markets have been rapidly growing and modernising, with assets under management growing to $13.1tn as of last year, according to McKinsey's 2024 Global Private Markets Review.
What’s more, the slowdown of public markets has seen huge growth for private secondary markets, with Jefferies data showing transactions growing from $20bn in 2010 to $100bn in 2022, as private equity firms seek out exit opportunities.
One of the primary forces propelling the growth and sophistication of private markets is new technology. This has automated and digitised arcane processes, enabling access, streamlining transactions and, crucially, closing the gap to public markets.
Levelling up efficiency
Private markets have historically lagged behind public markets when it comes to efficiency. The digitisation of central securities depositories (otherwise known as dematerialisation) digitised public markets in the 20th century, making them easily accessible for everyone, from large financial institutions to armchair traders.
By contrast, private markets largely operated through expensive intermediaries with a great deal of red tape around ensuring secure cash custody and legal title transfers.
Key processes such as investor onboarding, background checks and regulatory compliance, price negotiation, term setting and order confirmation were, up until recently, carried out manually. This culminated in slow transactions and settlement that could take weeks, or months, if not longer.
However, new technology, like workflow automation software, has brought digitisation and automation to private markets.
Private assets, from shares in private companies to units in private equity managers, can now be transacted and settled almost as efficiently and seamlessly as public markets. This significantly educes the settlement cycle, lowering risk, and allowing a greater number of participants to allocate to private markets in the first place.
The digitisation of cumbersome processes such as securities issuance, administration, transferability, and settlement has streamlined transactions and closed the efficiency gap with public markets, leading to a reduction in costs and improved access.
All of this innovation and progress has enabled two key trends, propelling private markets forward faster than ever.
Higher levels of funding
The rise of venture capital, private equity groups, and family offices capable of deploying vast pools of private capital has meant the funding options for those wanting to stay or go private are there at scale.
EY recently reported that an estimated $24.4tn of capital is invested in private markets – a figure expected to continue rising, despite recent headwinds.
This expansion in private markets AUM signifies that public markets are now in direct competition with private markets as sources of capital for companies of all sizes.
The secondaries boom
The secondary trading market is growing at pace, with record volumes of more than $70bn witnessed in the first half of 2024, according to Secondaries Investor. This rapid growth has eroded one of the key advantages that public markets offer investors: liquidity.
As technological developments allow investors to buy and sell existing assets more easily, liquidity increases dramatically.
