Building the Private Markets Bridge to Main Street
October 11, 2024
Read Time: 2 minutes
Private Markets
Jyoti OrphanidesVice President, Head of Technical Content, Product Marketing
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Recent shifts are transforming the private markets landscape as firms expand access to retail investors. "Retailization" marks a significant transformation for private markets managers who typically created products for the institutional domain. Driven by the need for new sources of capital and diversification and encouraged by the enormous wealth retail investors wield, private markets managers are increasingly embracing a new class of investors.
Institutional fundraising in the private markets has slowed and concerns about distribution payout are on the rise. Inflows into the private markets continue at a healthy pace — but investments are slowing. As private markets managers look for a fresh source of capital, individual investors stand out. Collectively, the retail market holds $295 trillion in global assets under management — a sum that is almost half of the world’s global assets and a massive untapped source of capital.
Retail investors are also intrigued by opportunities in the private markets fueled by a demand for higher returns, diversification, and exposure to high-growth sectors, which can be harder to achieve in the public markets.
Selling to retail investors presents unique challenges. One significant hurdle is the need for firms to adapt their operations, particularly in personalization, reporting, and analytics. Private market investments often have complex structures and long horizons, which can be overwhelming for the average retail investor. To build trust and meet expectations, firms must prioritize transparency and provide tailored, easy-to-understand reporting.
Fund managers must also evaluate their offerings, leveraging innovative products and platforms to create new investment opportunities. New investment vehicles can facilitate pooled capital, tokenization, or fractional ownership to make investments more reachable for the masses. Retail investors are also more likely to need liquidity and shorter investment durations, which contrasts with the traditional long-term nature of private equity and venture capital. Innovative structures, such as business development companies or master-feeder funds can allow for more liquidity and shorter lock-up periods.
Retail investors need to ensure they fully understand fees, performance expectations, lock-up periods, liquidity constraints, and the potential risks associated with investing in this industry. Fund managers can help with this by ensuring platforms support education in clear terms that are free from industry jargon.
Regulations will inevitably influence any new asset class. Since retail investors are subject to different rules than institutional investors, managers must be ready to comply with investor protection measures, such as disclosure requirements and risk management protocols.
Ebook: The Retailization of the Private Markets
To successfully expand into the retail market while continuing to serve institutional clients, firms must be willing to embrace technology. Platforms that can streamline reporting, track performance, provide education, and deliver information in easy-to-consume formats are becoming increasingly important. User-friendly, digital interfaces simplify the complexities of investing in private markets and foster greater accessibility.
Automation tools are another competitive advantage helping fund managers maintain regulatory compliance, improve the onboarding process, and support ongoing monitoring for retail investors.
The retailization of private markets represents a major shift in the investment world — for both individual investors and private markets firms. For investors, it offers the chance to participate in growth sectors once out of reach, while privates are eyeing a fresh and sizable source of capital.
By embracing technology and preparing their organization to meet a new set of expectations, firms can tap into the potential of retail investors and foster a more inclusive investment ecosystem.
As this trend continues, retail investors will have more opportunities to diversify their portfolios with private market assets, ultimately reshaping the future of investing.
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