Strategy advisory group Indefi released a new report that shows by 2030 private markets will be the top source of revenue for global asset management firms.
The group found that private markets in another eight years will represent 27% of global annual revenues for firms, totaling $275 billion. In Europe, the percentage is higher at 37%. Last year private market strategies accounted for 21% of global asset management revenue.
The figures are perhaps less surprising in the U.S., where the world’s largest asset manager BlackRock reported overall assets have hit the $10 trillion mark with alternative investments growing by $30 billion over the last year.
The growth of private markets AUM worldwide is projected to grow by 11% by 2030, while other asset classes grow by 6%, according to Indefi.
Established in 2007, Indefi seeks to help asset managers shape their business strategies and build a sustainable competitive advantage. The firm’s expertise spans public and private markets, including infrastructure, private credit and equity, and real estate. The firm also considers itself to be a pioneer in advising asset managers on ESG development and integration strategies.
Today Indefi predicts a monumental shift in the global asset management community to embrace investors’ growing appetite for private market strategies. That brings with it some challenges for firms looking to grow.
Challenges such as cost pressures are fueling a diversification of investment formats, such as co-investments and non-discretionary mandates, that mark a shift away from traditional closed-end vehicles.
Also top of mind is the rise of ESG and impact investing, which for the asset managers requires additional resources and a redefinition of the traditional performance assessment framework.
Lastly, this leads to digitization, which can take on many forms from origination to distribution.
For private market managers it means they will need to adapt their business model and leverage the ‘complete strategic toolbox.’
In Europe, Indefi believes, firms will need to focus on industrialized asset origination capabilities in order to support the scalability of their model as well as enhanced distribution capabilities, officials advised.
Interestingly, in meeting the challenge, Indefi predicts that European managers will need to take advantage of the restructuring of the European life insurance industry as well as the rapid consolidation of IFA/RIA market segments. Also, on the table are creating strategic partnerships with LPs or distributors operating at scale.
Lastly, Indefi sees firms raising capital in public markets as private market managers take advantage of the current attractive valuation window of opportunity.