Private market assets to grow at more than twice the rate of public assets, reaching up to $65 trillion by 2032, Bain & Company finds

BOSTON-August 21, 2024- Private market assets under management (AUM) will grow more than twice the rate of public assets, reaching $60 to $65 trillion by 2032, according to new research by Bain & Company.

Bain's analysis, Avoiding Wipeout: How to Ride the Wave of Private Markets, shows by 2032, private assets will grow by a 9% to 10% compound annual growth rate (CAGR), accounting for 30% of all AUM.

Bain's findings come as wealth and asset management firms increase their private market offerings while profitability from public markets has fallen by half.

"Wealth and asset managers are now favoring private markets because the business models that have dominated asset management for years have nearly run their course," said Markus Habbel, global head of Bain's Wealth & Asset Management practice. "Private assets constitute a much larger market than public assets and offer potentially higher yields, diversification, and in cases such as real estate-a hedge against inflation. Our research shows there are five key areas firms must focus on if they wish to adapt."

Private market appeal

Fee revenue for private market investments should double to $2 trillion by 2032, with private equity and venture capital remaining as the largest asset categories, Bain estimates. Other areas that are likely to expand into sizeable asset classes by 2032, according to Bain, include private alternative credit which is expected to expand at a 10% to 12% CAGR; and robust infrastructure growth which will likely maintain a 13% to 15% CAGR pace over the next decade.

Rise of retail investors

Investor demand has picked up as well, with institutional investors expected to increase their allocation to alternative assets by a 10% CAGR from 2022 to 2032, causing AUM to reach at least $60 trillion. Sovereign wealth funds, endowments, and insurance funds are seeking higher yields due to public market volatility and declining returns.

Similarly, rising contributions from retail investors will cause the retail AUM share to rise from 16% in 2022 to 22% in 2032.

"Individuals are drawn to the alternative asset market by the prospect of diversification and higher returns and are therefore willing to tolerate lower liquidity," said Habbel. "In response to this demand, leading companies have launched innovative offerings such as intermittent liquidity products for retail investors."

What it takes to adapt

As asset managers gear up to become full-service providers across asset classes, Bain has observed a convergence in strategies among providers of traditional versus alternative asset products. Those who will dominate the market will likely rely on two tactics: offering a niche product that will attract high-net-worth individuals, and ensuring large-scale production.

Five areas asset managers should focus on if they wish to adapt and stay ahead of competitors include:

• Define where to play and how to win. Companies need to understand their starting point and ultimate ambition for private markets before making any moves.
• Develop new front-to-back-office capabilities. This can be accomplished through salesforce training, onboarding product specialists, and redesigning operations which will help bridge the differences between private and public market systems.
• Educate investors. Companies will need to communicate how investors can have sufficient liquidity and the ability to collateralize private assets.
• Adapt sales and marketing. New digital platforms and other distribution channels will be required to heighten brand awareness, raise funds, and offer a broader array of assets. Companies will need to hire and train sales representatives adept in developing relationships with wealth managers and explaining complex products to retail clients.
• Improve M&A integration skills. Deal activity in private markets has accelerated since 2020, with more than 40 transactions in each of the past three years. Improved integration skills will be needed to blend talent, culture, and operations.

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