Key Takeaways
- • Private markets are projected to reach $34.12 trillion in AUM by 2031, with alternative assets including hedge funds growing at an 8.5% CAGR over the next five years.
- • Private markets remain a small share of the estimated $290 trillion total investable market across public and private assets, signaling significant headroom for growth.
- • Growth drivers include private companies staying private longer, AI-related value creation favoring private equity and venture capital, and long-term infrastructure financing needs amid fiscal deficits in developed economies.
- • Rising performance dispersion, a backlog of mature assets from low-rate-era deals, and slower LP distributions make manager selection a critical priority.
- • Less crowded bidding and lower entry multiples may favor vintage 2026 and 2027 funds over earlier vintages, according to the article.
Summary
Private markets are projected to reach $34.12 trillion by 2031, according to a Funds Society article citing projections from Preqin and BlackRock Inc. The article notes that alternative assets, including hedge funds, are expected to grow at an 8.5% compound annual growth rate over the next five years, with a somewhat slower pace of AUM expansion than in prior periods. Despite this growth, private markets still represent a small share of the estimated $290 trillion total investable market spanning public and private assets.
The article attributes continued expansion to several structural drivers. Private companies now have more diverse financing options, making it viable to remain private rather than go public. The rollout of artificial intelligence is expected to create substantial value, with private equity and venture capital well positioned to capture a significant share of it before public investors can participate. Infrastructure is another major driver, with long-term capital requirements tied to energy security, AI infrastructure, supply chain onshoring and traditional construction. Deep fiscal deficits in many developed economies limit public balance sheets' capacity to fund these needs, shifting financing toward private capital.
On the allocator side, the article highlights the growing adoption of the total portfolio approach by prominent institutional investors, which moves away from traditional asset-class silos toward evaluating aggregate exposure across public and private holdings. Product innovation is enabling broader investor access while helping manage liquidity over longer holding periods, and secondary market depth is expected to keep improving, giving LPs more flexibility to manage positions.
The article also cautions that conditions have shifted. Some managers are holding assets acquired during an era of low nominal interest rates, creating a backlog of mature holdings, extending hold periods and dampening performance expectations. Slower capital distributions to LPs have complicated fundraising for successor funds. The resulting dispersion across performance, fundraising and realizations makes manager selection more important. The article argues this environment may benefit new capital, as bidding may be less crowded than at the 2021 peak, potentially producing lower entry multiples and stronger return prospects for vintage 2026 and 2027 funds. The article concludes that the path of long-term interest rates will remain a central consideration for investors, given elevated long-term capital demands from sovereigns and hyperscalers.
The article attributes continued expansion to several structural drivers. Private companies now have more diverse financing options, making it viable to remain private rather than go public. The rollout of artificial intelligence is expected to create substantial value, with private equity and venture capital well positioned to capture a significant share of it before public investors can participate. Infrastructure is another major driver, with long-term capital requirements tied to energy security, AI infrastructure, supply chain onshoring and traditional construction. Deep fiscal deficits in many developed economies limit public balance sheets' capacity to fund these needs, shifting financing toward private capital.
On the allocator side, the article highlights the growing adoption of the total portfolio approach by prominent institutional investors, which moves away from traditional asset-class silos toward evaluating aggregate exposure across public and private holdings. Product innovation is enabling broader investor access while helping manage liquidity over longer holding periods, and secondary market depth is expected to keep improving, giving LPs more flexibility to manage positions.
The article also cautions that conditions have shifted. Some managers are holding assets acquired during an era of low nominal interest rates, creating a backlog of mature holdings, extending hold periods and dampening performance expectations. Slower capital distributions to LPs have complicated fundraising for successor funds. The resulting dispersion across performance, fundraising and realizations makes manager selection more important. The article argues this environment may benefit new capital, as bidding may be less crowded than at the 2021 peak, potentially producing lower entry multiples and stronger return prospects for vintage 2026 and 2027 funds. The article concludes that the path of long-term interest rates will remain a central consideration for investors, given elevated long-term capital demands from sovereigns and hyperscalers.
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