4) Higher Yields
In this sustained low-yield environment of the public markets, the private markets offer investors a chance to maintain and grow returns. Due to the investment profile of sectors such as real estate, private equity and other alternative/private assets which tend to have longer term horizons that are less impacted by movements within the public markets, the asset class promises higher yields for investors.
Compared to the MSCI All Country World Index (MSCI ACWI), which has been designed to represent the performance of large- and mid-cap stocks across 23 developed and 27 emerging economies, private capital delivered returns over the past 10 years of 12.03%, compared to the MSCI ACWI’s 9.67%. Topping the charts on highest returns was private equity at 13.89%, venture capital at 13.19% and real estate at 12.30%.
5) Increased regulation
One of the biggest agenda items investors have regarding the private markets is the need for transparency and a key driver for that is reporting. Private investors, their family offices and/or trustees are all driving demand for accurate, timely and digital reporting and regulation which will only drive transparency and encourage other investors to invest. After all, most private wealth investors and institutional investors invest these days in a wide range of asset classes, currencies and geographies – holistic, real time (as possible) and visually useful reporting is now an imperative to making investment decisions.
Fund managers need transparency over their alternative asset investments as they are managing their investors’ (LP’s) money – who are increasingly demanding to know the resting value of their assets. They are subject to regulation, meaning that they need to know what their position is on an asset at all times. To add to this, the ILPA is working together with investors and regulators to drive increased regulation, and therefore transparency, within the private markets.
Institutional asset owners and private investors are increasingly interested in having accurate reporting on their investments as they have branched out into at least several different asset classes, regions and currencies. Much of this demand in reporting is being driven by the younger generation, as they want to have oversight over the assets they are invested in especially for Environmental, Social and Governance (ESG) and/or impact investment considerations.
Increased reporting will naturally lead to increased investment in the private markets by investors as they have more transparency over their investments.
Looking ahead
The continued rise of interest in private capital is a trend we expect to continue to grow over the coming decades as wealthy private investors, family offices, institutional investors and fund managers become more globalised and sophisticated and want to increase their returns. Through offering investors, a strong alternative to the public markets, private capital looks set to continue to rise and rise.
