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For many years, the world of private market investments was reserved for financial institutions and the ultrawealthy. More recently, though, that world opened its doors to everyone, and while retail investors’ allocations in private markets are still relatively low, financial experts expect exponential growth: By 2030, retail investors’ allocations to private capital will grow from around $80 billion to $2.4 trillion in the United States, according to a new report from the Deloitte Center for Financial Services. In the European Union, Deloitte expects those allocations to more than triple, from €924 billion to €3.3 trillion in the same time frame.
Private investments are assets that lie outside public market staples like stocks, bonds, and cash. They include so-called alternatives like private equity, private credit, hedge funds, real estate, and direct holdings of private companies. They typically offer less liquidity than public markets, and can be riskier to invest in. The ultrawealthy, who have invested more and more in private markets in recent years, generally view them as long-term investments, and are happy to take on the risk and illiquidity for potentially higher returns than public investments can provide.
Companies are staying private longer, creating significant value for shareholders before they IPO, which has contributed to the gold rush, according to Morgan Stanley. Increasingly more investors want a piece of the private pie.
Recently, investment fund managers have tried to open private markets to retail investors with far fewer assets than the world’s elite. Mutual funds and ETFs can offer some exposure, as can so-called interval funds.
While private capital firms are pushing interval funds, it’s mutual funds and ETFs that will lead private market exposure among average investors, says Deloitte. This is because these assets, which can have up to 15% exposure to illiquid investments in the U.S., can be held within retirement accounts—where most of the average American’s assets are held—and many investors are already familiar with their structure.
Indeed, some asset managers, including BlackRock, are already adding private market investments to retirement plan offerings. The industry’s new line is that investors should dabble in mixing public and private investments. Larry Fink, CEO of BlackRock, called for expanding access to private markets to everyday investors in his annual letter to shareholders last month. The majority of the assets BlackRock manages are held in retirement accounts.
“Given that regulated retail product structures for packaging private capital already exist, more investment managers are likely to include this asset class in their product offerings, such as the funds available to retirement accounts, to retail clients over the coming years,” the report reads.