Rising volatility driving growth of private markets

SINGAPORE - Rising volatility in traditional investment markets and the search for higher yield are driving a steady growth in private market investments, especially among non-institutional investors, according to Mr David Perez de Albeniz, head of Asia at private market intermediary Allfunds.

“The size of the global private market, which comprises largely of private equity, private debt, venture capital and investment in infrastructure, now stands at well over US$12 trillion (S$16.5 trillion),” said Mr Albeniz.

Asia accounts for about 22 per cent of this, with Europe taking up another 20 per cent.

Mr Albeniz said the private debt market

had weathered the industry downturn well in 2022

and continues to be in demand as it fills the gap left by banks which might not be lending.

“Infrastructure continues to be in high demand and should continue to benefit from the US$15 trillion projected global infrastructure spending gap up until 2030,” he said. “Meanwhile, private equity will make a comeback once interest rates stabilise as there are huge opportunities.”

The private market comprises privately owned companies which are largely funded by founders and institutional investors.

In contrast, the public market involves companies and entities which are traded on the stock market and the general public can invest in them.

Mr Albeniz pointed out that fewer than 15 per cent of companies with revenue of over US$100 million are publicly held. This signals a huge opportunity in the private markets, especially in private debt and equity.

Some 85 per cent of investors in private markets are supranationals, endowment funds and pension funds. But the retail segment, which accounts for the remaining 15 per cent, is starting to show higher growth.

“While the overall market is growing at about 8 per cent annually, the retail investor segment is growing at a relatively higher rate of 12 per cent year on year now, albeit from a lower base,” Mr Albeniz said.

He added that given the

increasing volatility in traditional investments such as equities and bonds,

there was a growing appetite from high-net-worth investors for private market investment opportunities.

Also driving demand was the high interest rate and volatile yield environment.

Allfunds estimates about 1 to 3 per cent of total private banking assets are now in private markets.

“In Asia, that could represent somewhere around US$30 billion for the top 10 private banks,” Mr Albeniz said.

“Almost every private bank we have spoken to is aiming at having 15 to 20 per cent of their clients’ assets allocated to these alternative strategies. The growth outlook is very strong.”

Growth has been particularly strong in Asia, with China accounting for 80 per cent of the region’s private market investments. But activity in other parts of the region is gaining momentum.

Mr Albeniz added that Allfunds is seeing bigger opportunities within South-east Asia, especially Singapore and Thailand. Hong Kong intermediaries are also showing huge interest, he added.

“From a country allocation perspective, India seems to be in fashion”.

Allfunds matches investors with private market investment opportunities. It does this by working with general partners such as banks, insurance companies and fintech platforms.

Its revenue comes from a portion of fees earned by distributors.

“We enable banks and other intermediaries to put private market products on their shelves for their clients,” Mr Albeniz explained.

“On the sell side, we work with institutions like Apollo, Blackstone, Carlyle, Morgan Stanley and others who share our same vision and strategy, and launch vehicles targeting this wealth segment.”

But the distribution and marketing infrastructure still needs to be built up, he added.

This includes creating the right vehicles, hiring sales professionals, incorporating customer service, having public relations expertise and developing communications strategies.

“Conventionally, products which invest in private market strategies came at a huge cost of doing business for intermediaries such as banks, insurance companies and wealth managers,” he said.

“Not only were there not enough products, but their intrinsic characteristics, such as illiquidity and infrequent valuation, made them very difficult to deal with.”

While not all general partners are used to dealing with retail investors, the bigger ones have taken the lead and are setting up shop around these new investors’ needs, Mr Albeniz said.

He added that Allfunds, together with some of the industry’s leading general partners, is working to bring efficiency to the marketplace so that intermediaries can access the new generation of products in a seamless and less costly manner.

“Our goal is to make private markets accessible to individual investors by working closely with distributors such as banks, insurance companies and fintech platforms,” he said.

Going forward, Mr Albeniz sees increasing sectorial opportunities in private markets within technology, healthcare and energy transition sectors.

“Inflation, rising interest rates and higher energy prices have fuelled interest in oil and gas, infrastructure and US real estate as an inflation hedge,” he said.