- Retail-style vehicles are set to account for at least half of
private market flows in the next two years, according to 56% of
institutional investors
- Continued geopolitical uncertainty could further increase
demand, with investors turning to private markets to reduce
portfolio volatility
State Street Corporation (NYSE: STT) today launched its global
Private Markets Survey Report “The New Private Markets
Advantage”.
Among the key takeaways, Institutional investors are
anticipating a significant uptick in retail allocations to private
markets in the next two years, with retail investors set to become
the main source of private market fundraising in this period,
according to the latest iteration of State Street’s private markets
research. 1
The survey of 500 institutional investors, including traditional
asset managers, private markets managers and asset owners across
North America, Europe, the Middle East and Asia-Pacific, finds that
the majority of respondents (56%) now believe at least half of
private market flows will come through semi-liquid, retail-style
vehicles marketed to individuals within 1-2 years.
Product innovation in the semi-liquid fund space is the most
recognised enabler of this “retail revolution”, cited by 44% of
respondents globally as the best means for driving the
democratisation of private markets. Recent examples range from the
launch of pioneering funds like private asset ETFs to structural
innovations such as the UK’s LTAF and EU’s ELTIF 2.0 rules.
Notably, such innovation ranked slightly lower (37%) among North
American respondents, whose primary response was ‘lowering
means-based barriers to entry’ (44%), such as wealth or income
minimum thresholds.
More than two in five (22%) respondents believe retail-style
vehicles will be the main fundraising mechanism for private
markets, up considerably from 14% last year. While enhanced
appetite from retail investors is in part driving this demand, a
drop-off in expectations for traditional fundraising from
institutional investors is also contributing: just 39% of
respondents now expect traditional fundraising to account for most
flows, down from 51% last year.
Donna Milrod, chief product officer and head of Digital
Asset Solutions at State Street, commented: The democratisation of
private markets is a trend that has been underway for a number of
years; however, 2025 has the potential to be a watershed year for
retail allocations to private markets. Distribution to wealth
channels and retail fund flows could become the dominant
contributor to future fundraising. Against this backdrop, we are
pleased to see respondents recognising the critical role that
innovative fund products and structures are playing in fuelling and
enhancing this trend as distribution broadens from institutional to
mass affluent to retail over the coming years.”
‘Flight to quality’ now entrenched in investment strategies,
as anticipated rate of private markets growth slows
This year’s findings support indications from earlier State
Street research that the higher interest rate environment which
began in the early 2020s has led to a growing focus on due
diligence and risk/return assessments among investors, which has in
turn prompted a pivot away from riskier private assets and towards
a smaller pool of high-quality options.2
Overall, LPs and GPs both predict a private/public split of
42%/58% in their (or their clients’) portfolios within 3-5 years’
time, which represents a slight increase in their respective
current allocations of 39%/61% (LPs) and 38%/62% (GPs).
At the same time, the 2025 data reveals a year-on-year shift in
capital allocation plans from emerging to developed markets.
Developed Europe saw a significant jump in interest, with 63% of
LPs now planning investments in the region over the next two years
(up from 43% last year), while other developed markets remained
largely steady. Emerging APAC has seen the biggest decline in
forecasted appetite, with just 14% of LPs planning to invest there
(down from 25% last year), while emerging Europe dropped to 18%
from 21%. The Middle East and Africa also declined significantly,
albeit from low bases.
State Street contends that this preference for developed
markets, in conjunction with more modest growth in allocations,
constitutes a flight to quality (or flight from risk) in
institutions’ private markets strategies.
Scott Carpenter, global head of Alternatives at State
Street, commented: “Private markets remain on a robust growth
trajectory, though the pace of expansion as a share of portfolios
has moderated from the exceptional levels seen pre-2024. The
renewed macroeconomic uncertainty linked to US trade policy,
following so immediately from the inflation shock of the pandemic
years, is only likely to encourage institutions to be even more
selective about how they allocate.”
Geopolitical uncertainty complicates the outlook for private
market assets and retail-style products
State Street’s study highlights that the current geopolitical
uncertainty surrounding international trade relationships could
support private markets. The smoother, less volatile returns
typically delivered by private market assets are a key part of
their appeal, cited by around a quarter of respondents as their
reason for increasing allocations to private equity (22%) and
infrastructure (26%), while as many as 42% said the same for
private credit.
However, the report underlines that trade-related uncertainty is
likely to distort the definition of ‘quality’ in ways specific to
the economic environment that ends up occurring. As an example,
when polled prior to ‘Liberation Day’, respondents across all
regions and across all private market asset classes said that they
expected to find the most investment opportunities in North America
over the next two years. In contrast, State Street’s research now
notes, among other hypotheticals, a scenario whereby non-US
countries and blocs could take steps to increase trade volumes with
one another, rather than with the US. In this dynamic, State Street
posits private markets investments in companies with reduced US
exposure would benefit, rather than US assets. The outlook for
‘quality’ private market assets is therefore significantly clouded
by the current environment.
Further to this, State Street recognizes that economic
disruption complicates the development pathway for the new
retail-style private market products. On one hand, policymakers may
have to prioritize other economic policy challenges over the
reforms required to facilitate the development of these funds.
Compounding this, if the underlying assets in retail-style products
lose value for a prolonged period, individual investors may
negatively associate the funds with the broader macroeconomic
environment, reducing demand for the funds.
On the other hand, the research says, in a period of restrictive
economic conditions and fiscal tightening, governments may come to
see retail flows as a way to increase funding to their domestic
priorities (e.g. defence). Such a shift may prompt greater
legislative and regulatory attention on the reforms needed to
develop retail-style products, suggests State Street.
AI integration key to the success of institutions’ private
markets operations
As demand for private assets grows, institutions are
increasingly recognising the value of Generative AI and Large
Language Models (LLMs) in enhancing their private markets
operations. While in last year’s survey only 58% of those surveyed
said they saw the value in the technology, 83% are now planning out
cases for the technology to generate analysable data out of
unstructured private markets information from their operations.
Correspondingly, planned technology expenditure is up for the
overwhelming majority (69%) of respondents.
While GPs and LPs identified a broad range of use cases for
these innovations, from analysing company reports to distributions,
loan agreement documents, purchase/sale documentation and
sustainability information, performance analysis is where most said
the technology would prove “most useful”, both at a portfolio level
and for individual holdings.
Around a third of respondents (34%) agreed that technology
development enabling more frequent, timely and high-quality data is
an essential factor in making private markets accessible to a wide
range of individual investors, while 37% also called on governments
and regulators to mandate private companies to give more and better
data to their investors.
Chris Rowland, head of Custody, Digital and Fund Services
Product: “We believe that portfolio liquidity starts with data
liquidity. This year’s results show that institutions are moving
from hypothetical to real implementation of AI-based solutions in
their private markets operations, and those at the forefront of
this innovation will gain a significant advantage.”
Please click here to download the 2025 Private Markets Research
Report.
1 The study, commissioned by State Street and conducted by
CoreData Research, surveyed 500 respondents from buyside investment
institutions including private markets specialist managers,
generalist asset managers with private markets portfolios, and
institutional asset owners across four regions, North America,
Europe, the Middle East and Asia-Pacific, in Q1 2025.
2 2024 Private Markets Outlook: An analysis of capital
distribution and fundraising in global private markets
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's
leading providers of financial services to institutional investors
including investment servicing, investment management and
investment research and trading. With $46.7 trillion in assets
under custody and/or administration and $4.7 trillion* in assets
under management as of March 31, 2025, State Street operates
globally in more than 100 geographic markets and employs
approximately 53,000 worldwide. For more information, visit State
Street's website at www.statestreet.com.
*Assets under management as of March 31, 2025 includes
approximately $106 billion of assets with respect to SPDR® products
for which State Street Global Advisors Funds Distributors, LLC
(SSGA FD) acts solely as the marketing agent. SSGA FD and State
Street Global Advisors are affiliated.
© 2025 State Street Corporation
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