Private markets have grown exponentially in the last decade, with assets under management increasing at an annual rate of 20% between 2018 and 2023.
Although the market has cooled since its noted spike in 2021, the future looks promising with PwC predicting assets under management to grow to $147.30 trillion by 2027.
A recent Adams Street Partners report revealed that 88% of investors agree that private markets will continue to outperform public markets in the long run, this is up from 86% in the same survey the year before.
With such vast volumes and substantial growth on the way, many asset managers are vying to capture a greater share of the market. However, many are preoccupied with other challenges such as performance and rising costs and overlooking the critical need for digitisation which will help solve these issues and more.
Fund managers must prioritise digitisation
The asset management industry experienced stunted growth throughout 2023. By June, Europe-focused funds endured their highest outflows, with 14 consecutive weeks of declining volumes.
However, there’s significant optimism in the air, as 84% of asset managers expect the industry to grow, with this sentiment backed by economists. PwC predicts AUM will grow to $147.3 trillion by 2027 and by then, private markets are expected to make up 50% of total revenue for asset managers, which is a significant increase from pre-COVID years where it has traditionally been less than 40%.
As the market expands, asset managers are increasingly focused on capturing a larger share. However, despite 84% of asset managers expecting the market to grow, only 22% are planning to implement changes to their operating models to achieve greater efficiency. Of those planning to implement changes, only 63% plan to implement new technology.
Instead, asset managers are preoccupied with solving other challenges, namely performance, talent management and rising costs. Just 31% were concerned with outdated technology.
However, overlooking digitisation is a false economy, as many of these top challenges could be effectively addressed through strategic digital transformation.
The areas of private markets that are ripe for reform
There are many areas within private markets that are ripe for digital transformation. Among these, the most important include:
Executing manual repetitive processes: By leveraging automation, firms can streamline historically manual, cumbersome tasks such as data entry, document management, and regulatory compliance. This not only reduces operational costs but also enhances efficiency and accuracy, allowing professionals to allocate more time and resources towards strategic decision-making and value creation.
Reporting: Current annual reporting requirements for asset managers consist of a patchwork of disconnected and manual systems including Excel spreadsheets, and incompatible formats. With no present universal system of record for ownership, a digital tool that automates the process for asset managers is a simple way to lessen the burden, while reducing manual intervention.
Trading and settlement: Public markets trade on centralised exchanges digitally. As such, all market participants are connected, and transacting is nearly instant and seamless. However, transactions in private markets still rely heavily on manual processes substantially increasing these timelines. Digital solutions can close this gap.
Distribution efficiencies: By deploying digital platforms and advanced analytics, firms can optimise their distribution channels, streamline processes, and tailor marketing efforts to target specific investor segments more effectively. Automating tasks such as investor onboarding, reporting, and communication not only accelerates the distribution process but also ensures a personalised and seamless experience for investors. With digital tools enabling real-time tracking of investor preferences and behaviours, firms can adapt their strategies promptly and capitalise on market trends.
There are even more areas of private markets that digitisation can improve but these issues are the low hanging fruit. Asset managers that do this will be well-positioned to capture a bigger piece of the lucrative private markets pie; those that don’t will get left behind.
Digitised firms will succeed
“There essentially is no way for a leading asset manager to ignore private markets,” said Greg Wunderlin, Global Head of Private Assets at Schroders.
And he’s right. But I would go one step further and say firms can’t afford to ignore digitisation in private markets.
In today’s rapidly evolving business landscape, asset managers find themselves at a critical juncture. The relentless march of technology has introduced new paradigms that can no longer be ignored and it’s no longer a question of “if” but rather “how” organisations should embrace the digital era.
Asset managers need to be flexible and agile to keep up with change and get ahead of their competitors. They need to move away from the ‘this is the way we’ve always done it’ mindset and embrace technological advancement.
Digitalisation focuses on how to do things better and bring much-needed transparency and improved investor trust in an unpredictable landscape. Digital transformation brings significant benefits by enabling revenue creation, cost reduction, shorter transaction times, broader investor access and enhanced operational efficiency.
Those who recognise the potential of technology-driven strategies and navigate the digital revolution with agility will undoubtedly stand as the vanguards of innovation, redefining the future of asset management.
The author is Co-Founder and CEO of London-based fintech Myles Milston
