The traditional boundaries between asset management strategies are blurring as firms increasingly expand into the private capital space, a new report has found.
According to PwC, the global market landscape is changing with private capital emerging as a “formidable force”, transforming industries and fuelling investment opportunities.
The professional services firm noted that this trend follows a significant shift towards borrowing and lending capital through private credit managers.
“As banks face capital pressures and public funding remains constrained, private credit has stepped in as a powerful complement to traditional capital providers and an important source of funding for underserved business segments,” PwC said.
This is particularly true for the Asia-Pacific. Markets in the region currently heavily rely on local banks for their capital needs, with this figure sitting at around 77 per cent for Australian businesses alone.
“But as these markets expand, particularly in Southeast Asia, they will naturally need to pivot towards private capital and cross-border capital providers in order to grow.”
“As government policies and reforms continue to boost efforts to meet development targets and improve investment climates, the role of private credit will become increasingly pivotal in supporting economic growth.”
However, large asset managers also have another reason to want to push more aggressively into private markets, the report underscored.
Namely, the rise in multi-asset approaches has been flagged as a key trend for the sector, with large companies homing in on acquiring and assembling multi-asset class businesses and filling gaps where needed.
“Besides growth ambitions, becoming a diversified group is an obvious choice for many large traditional asset managers as they continue to face intense fee and margin pressure on mutual funds and ETFs,” PwC said.
“There are clear synergies between asset classes.”
If a manager has an expertise in data centres, for instance, they may well have important insights into energy sources and transitions, which also informs related private credit opportunities.
“Similarly, there may be overlaps between areas of commercial real estate and private credit,” PwC said.
This shift is further accelerated by the increasing democratisation of private markets, as new technology and regulatory changes make it possible for individual investors to access private capital opportunities.
According to PwC, this trend is already playing out in various jurisdictions as innovation and product structuring have provided private market assets an avenue to reach a larger base of investors.
“A successful multi-asset group can then stretch its brand and capabilities across private and public markets, seeking to add value through a portfolio approach that exceeds the sum of its parts,” it said.
Notably, private markets, which accounted for around US$250 billion in revenue in 2022, are expected to drive half of global revenues by 2027.
“Going forward, traditional asset managers are expected to increasingly explore and capitalise on the available opportunities in private markets.
“With innovation in technology, increasing receptiveness from regulators and greater interest from asset and wealth managers to offer the asset class in a format accessible for individual investors, private market assets are expected to become more accessible to a broader spectrum of investor groups.”
