How to broaden access to private markets for greater inclusion

The opportunity to invest in a broad and diverse set of financial products is a fundamental building block for financial inclusion – it can serve as a catalyst for wealth creation, diversification and financial gains, while simultaneously empowering investors to participate in economic activity and demonstrate their financial acumen.

Retail investors today, however, do not have exposure to the full spectrum of investment opportunities with “alternative” asset classes or “private market” opportunities being under-represented in portfolios relative to the portfolios of institutional investors.

We need to do more to increase education and opportunities for access, but must do so in a manner that ensures we are educating investors, balancing risks, providing disclosure and ensuring products are suitable, as outlined in the Broadening Access to Private Markets report, produced in collaboration with Accenture and the World Economic Forum.

Over the past two decades, we have seen massive growth in “alternative” asset classes or “private market” products, which include private equity, private credit, real estate and infrastructure sub-asset classes. “Private market” assets under management (AUM) have increased nearly ten-fold – from about $1.3 trillion in 2005 to about $13 trillion in 2022.

These alternative assets have risen in popularity because of their potential to provide enhanced portfolio returns and diversification benefits that improve overall risk-return.

An analysis based upon data gathered by Preqin shows that private market asset classes have outperformed their public market equivalents over the past decade:

Similarly, work by J.P. Morgan has suggested that moving from a traditional investment mix of 80% equities and 20% bonds to a more diversified allocation that includes alternative asset classes can significantly reduce volatility while increasing overall returns.

Despite these potential benefits, exposure and access to high-quality private market investments has not crossed over to retail investors, who historically have focused their investment dollars on traditional instruments such as publicly-traded stocks and bonds.

While mass market investors with $0-$100,000 of net worth have significant liquidity risk considerations and therefore stringent investor protections, there remains ample opportunity for retail investors denoted as mass affluent and above (greater than $100,000 of net worth) to increase their access to private markets.

A lack of education about these private asset classes, stringent regulations, high investment minimums, lack of transparency and liquidity constraints have historically created barriers to mainstream investors participating and investing in these important asset classes.

Even if these products were more approachable to investors, there are systemic advantages that institutional investors have given their size and ability to compete for high-performing assets.

More work needs to be done across the investing ecosystem to address the challenges of retail access to private markets. We welcome creative thinking on how to expand access to private markets, but believe there are actions key stakeholders can do to increase access:

With the right guardrails and resources in place, private markets can be inclusive, not exclusive. More importantly, shared access to attractive asset classes can enhance wealth creation for retail investors and support long-term economic growth.