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Why Private Market Investments Are Catching Institutional Attention

With volatility shaking up public capital markets, many investors looking to deploy capital feel as though they’re trying to catch a falling knife. Institutional investors watching value stocks fluctuate like growth stocks are using the opportunity to look into private market funds. And for good reason. Recently, Oliver Wyman and Morgan Stanley estimated that private market funds will reach $13 trillion in assets under management (AUM) by 2025.

Private Market Value Creation

Three key factors are driving this transition: most value creation happens when companies are private; more companies are staying private longer; and the intra-day volatility of trading private equity remains low compared to public equities. This sets up private market funds favorably.

• More Value: Over a nearly twenty-year period from the late 1990’s to 2016, it was reported that the amount of publicly listed companies dropped by 52%. More recently, in January 2022, public stocks recorded their worst month since the crash of March 2020. During the same period, many private market funds only drew down by low-single digits. This divergence in availability and volatility reflects investors’ increased preference for holding private investments long-term.
• Longer Duration: Companies are staying private longer because of operational and financial benefits. These benefits include, but are not limited to, business owners saving time and effort when raising capital, their ability to raise capital from accredited and institutional investors, and their ability to control how the company is run. Altogether, this equates to long-term growth potential, and more reasons for investors to take a keen interest in private markets.
• Less Volatility: With reduced short-term volatility comes a longer-term outlook. One of the reasons that private market investments have held up so remarkably in the face of inflation, supply-chain constraints and an ongoing pandemic is that they simply don’t trade as frequently as public equities. Private market investments come with certain conditions that make them less liquid than public market investments, so they trade less frequently. This makes many private investments less volatile intraday and, for accredited and institutional investors, this steadiness can be attractive.

Expanding Opportunities

Private equity has outperformed public market benchmarks for years. And private equity is just one slice of the broader private capital markets ecosystem. As private markets continue to expand, institutional preferences can be expected to shift as well. With current private market estimates reaching $4.9 trillion in AUM — some $8 trillion less than Morgan Stanley’s 2025 estimates — the opportunities for growth are striking.

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