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North America Dominates the Global Fund Industry: The Region Accounts for 61% of Assets Under Management

Dominio de Norteamérica en la industria de fondos

According to the latest study by the Thinking Ahead Institute (TAI), associated with WTW, assets under management (AUM) by the world’s 500 largest asset managers reached $128 trillion at the end of 2023. Although levels from 2021 were not reached, the annual growth of 12.5% already marks a significant recovery following the previous year’s correction, when AUM dropped by $18 trillion in 2022.

The study highlights the evolution in active and passive management, showing that, for the first time, passive management strategies account for more than a third (33.7%) of assets under management among the top 500 asset managers, though nearly two-thirds continue to be actively managed.

In terms of asset class allocation, there is notable growth in private markets. Equity and fixed income, however, remain the predominant asset classes, totaling 77.3% of assets under management—48.3% in equities and 29% in fixed income. This represents a slight 0.2% decrease from the previous year as investors continue seeking alternatives such as private equity and other illiquid assets to achieve higher returns.

“Due in part to the performance of American equities as a driver of returns, North America experienced the highest growth in assets under management, with a 15% increase, followed closely by Europe (including the UK), which recorded a 12.4% rise. Japan, however, saw a slight decrease, with a 0.7% drop in AUM. As a result, North America now accounts for 60.8% of the total AUM among the top 500 managers, reaching $77.8 trillion at the end of 2023,” the report explains.

Consequently, U.S. asset managers dominate the top of the ranking, holding 14 of the top 20 positions and representing 80.3% of assets in this group. Among individual asset managers, BlackRock remains the world’s largest, with total assets exceeding $10 trillion. Vanguard Group holds the second spot with nearly $8.6 trillion, both far ahead of Fidelity Investments and State Street Global, ranked third and fourth, respectively. Among the managers with the most notable rises in the past five years are Charles Schwab Investment, which climbed 34 spots to reach 25th place, and Geode Capital Management, which rose 31 spots to 23rd. Canada’s Brookfield Asset Management also advanced 29 positions, reaching 31st place.

“Asset managers have experienced a year of consolidation and change. While we’ve seen a return to positive market performance, there have also been significant transformative factors,” says Jessica Gao, director of the Thinking Ahead Institute.

The report’s findings indicate that macroeconomic factors have played a key role, with high interest rates in 2023 exerting various pressures across asset classes, geographies, and investment styles. The study explains that as rates begin shifting toward a reduction phase, equity markets are again delivering positive returns, driven by growth expectations. Future uncertainties are centered on geopolitical events and several major national elections.

Raúl Mateos, APG Leader for Continental Europe, notes that asset managers face significant pressure to evolve their investment models: “Technology is essential, not only for maintaining a competitive edge but also for meeting client needs and expectations, as well as responding to the growing demand for more customized investment solutions. These demands are challenging traditional industry structures. In this context, we have seen notable successes among independent asset managers compared to many of those tied to insurers and banks.”

Regarding specific geographies, Mateos points out that in the past decade, we’ve seen a rise in AUM globally; however, Spain’s market share has declined over this period, from managing 1.5% in 2013 to 0.6% in 2023. “We need to go down to 99th place to find a Spanish representative, Banco Santander, with a total of $239.49 billion, leading the list of ten Spanish managers that include entities like CaixaBank, BBVA, and Mapfre. Moreover, assets managed under ESG criteria grew by 15.5% in 2023, reaching 29.6% of ESG investments within portfolios, marking the highest level in the past three years. This trend shows that ESG criteria are increasingly being integrated into asset selection, demonstrating a growing focus on the impact of our investments on the world,” he concludes.

“This is Actually a Good Time to Be Invested in Fixed Income, But Investors Need to Be Thoughtful”

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“This is actually a very good time to have a substantial allocation to fixed income after the normalization of two years ago.” These words are from Christian Hoffmann, head of fixed income and a portfolio manager for Thornburg Investment Management. Hoffmann recently sat for an interview with Funds Society to offer insights into the current market environment.

Hoffmann has been operating for 20 years in the industry. He likes to put facts in context for a better understanding of market conditions. For instance, he says that it is important for investors to understand that their fixed income portfolio won’t necessarily operate like they did in the 2010s or even in the same way it’s done for the past 40 years: “I think it’s important to always challenge historic correlations and regressions because the world is never exactly the same. This is a very good time to be invested in fixed income, but in a thoughtful way, and in a way that might challenge some investor assumptions.”

Hoffmann also throws out a warning: “Reinvestment risk is real, particularly as we see declining short-term rates.” So, to his point, this is “certainly an environment where taking some duration is favorable.” Thornburg considers its Strategic Income and Limited Term Income Funds to be suitable strategies to help investors navigate this complex market, depending on an investor’s risk tolerance and their long-term needs.

What is your outlook for the Fed’s new rate cutting cycle?

I still think that the market is probably looking for too much, especially as we’ve seen a slightly uncomfortable inflation print and certainly uncomfortable jobs numbers. We’re also heading into not just an election and some potential volatility and uncertainty, but also what is likely to be more noisy numbers owing to job strikes, hurricanes, and other exogenous events. The Fed has talked so much about data dependence that it’s hard to imagine why they feel the need to cut it all now. The argument would be, we’re in restrictive territory, we believe inflation is going in the right direction. The job market seems okay, but we want to protect it. The reaction function is based on data dependency, so I think the market should be concerned and recognize this needs to be more restrictive than we originally planned. I think it’s unlikely that we will see another 50-basis point move.

What should fixed income investors expect going forward?

We are living in a period of very high-interest rate volatility and actually very low spread volatility in credit. This environment should position investors to be somewhat cautious and thoughtful because the premium for taking risk is quite low relative to history at this point in the cycle. It also means a more opportunistic and tactical approach is warranted, given a lot of uncertainty around the economic path forward, on inflation, interest rates, monetary policy and on the fiscal side as well. I think it’s a good idea to have some dry powder because it’s unlikely we experience a lot of additional tightening from here.

It’s also important to point out that most people in financial markets have grown up in a zero-interest rate world. Zooming out and looking at the longer course of history, that’s a very abnormal period related to history. We had a gigantic reset, as we’ve shifted from a zero-interest rate world to something that looks a lot more normal now, so investors can again get income from a fixed income portfolio and achieve some ballast with a diversified portfolio relative to other risk assets.

Where are you finding opportunities in credit?

In volatile markets, there are more opportunities. But in the past couple of years, we’ve been very constructive on both agency and non-agency MBS. We feel good about home prices, so that’s led to opportunities in the non-agency space. But even in the agency space, credit risk is all but out of the picture. Historically, convexity risk has played a part, given that those securities traded near par, and investors were compensated with additional income. But given those prices had suddenly sold off, investors still have nice income as well as a lot of protection as it relates to pay downs and potential price appreciation. Several buyers in terms of the large banks exited the space, and the Federal Reserve unwound its balance sheet and created a supply-demand mismatch which offered an opportunity for investors like us. It could go tighter, but not much tighter: 10 basis points, possibly 30.

Are markets underestimating geopolitical risks?

We see a lot of complacency in the market right now. I think there’s probably too much focus on the Fed and not enough on global markets. The Chinese economy is clearly challenged and has issues, and the measures announced by its government tend to be a bit choppy, uncertain and hard to telegraph. There’s also tremendous geopolitical uncertainty in the Middle East, China and Russia. The market has been sanguine about them so far. When investors no longer feel sanguine, they tend to move to a more defensive position. A recession isn’t necessary to have risk assets misprice, because assets look through the future and to future expectations. All the market needs is fear to see credit spreads reprice.

Are you worried about the path of the fiscal policy and the possible outcomes after the elections?

It’s certainly a close election, and the likely best outcome for markets is some kind of split government. That said the two candidates both espouse policies and actions that I think an economist would not be particularly happy about, from Trump’s rhetoric about wanting more of a say in in central bank policy, which is, frankly, anathema to how the Federal Reserve has always been run in this country and I think should be a point of concern. Another problem is that neither candidate seems particularly interested in fiscal discipline. Government spending continues to increase, and that has been in a very good economic environment. So, we certainly worry about what that might look like in a less good economic environment. That could also mean that the bond reaction function operates a bit differently relative to the past. If we find ourselves in a bad environment, and people are also worried about the fiscal situation and monetary discipline, bonds might be less of a safe haven and people might move into cash or gold.

First Trust Announces the Launch of a New ETF

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First Trust Advisors (“First Trust”) announced the launch of a new ETF, the First Trust New Constructs Core Earnings Leaders ETF (FTCE) (the “fund”), according to a statement obtained by Funds Society.

“The fund seeks investment results that generally correspond to the price and performance (before the fund’s fees and expenses) of a stock index called the Bloomberg New Constructs Core Earnings Leaders Index,” the firm’s release states.

New Constructs determines core earnings by reviewing company reports and identifying non-core and non-recurring gains and losses through its proprietary rating system, using a combination of technology and expert analyst review.

Additionally, FTCE provides exposure to companies that are part of the Bloomberg New Constructs Core Earnings Leaders Index (BCORE). BCORE uses a quantitative approach to select the top 100 companies from the Bloomberg 1000 Index (B1000) with the highest earnings quality, based on Earnings Capture. A positive Earnings Capture reflects stronger business fundamentals and may present an investment opportunity, the statement adds.

“The rise in valuations has been a key driver of returns in the current bull market, while earnings growth has been more moderate. Consequently, for the bull market to continue, we believe investors may focus more on stocks with the potential to deliver high-quality, repeatable earnings,” said Ryan Issakainen, CFA, Senior Vice President and ETF Strategist at First Trust.

Meanwhile, Allison Stone, Head of Multi-Asset Products at Bloomberg Index Services Limited, commented, “It’s exciting to work with First Trust and see how our differentiated approach to earnings analysis is available to investors through an ETF. We’ve combined Bloomberg’s leading data and research with New Constructs’ analysis to create the index with a fresh perspective on the true earnings of companies.”

BECON IM and New Capital Announce That Their Series of Fixed Maturity Bond Funds Has Raised 400 Million Dollars

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Becon IM y New Capital lanzan fondos de bonos

BECON Investment Management, in partnership with New Capital, announced on Monday the close of the fifth issuance of Fixed Maturity Bond Funds, significantly surpassing initial expectations, according to a statement.

“With this latest issuance, which raised 65 million dollars, the total for the five series exceeds USD 400 million, consolidating both firms’ positions as leaders in the fixed-income market for Latin American and US Offshore investors,” the statement adds.

Fred Bates, an executive at BECON IM, highlighted the success of the FMP series, affirming that “we are committed to continuing to launch new products and share classes that are relevant to our clients in the US Offshore and Latam markets. New Capital is a highly dynamic firm with the ability to quickly adapt to investors’ needs.”

Juan Fagotti, also an executive at BECON IM, emphasized the depth and diversity of New Capital’s product offerings, underscoring the importance of providing tailored solutions for each investor profile.

“Each of the five fixed maturity funds, with maturities staggered from 2025 to 2029, has been marked by a rigorous and diversified investment strategy focused on active bond selection, geographic diversification, and active risk management,” said representatives from BECON IM.

“The success of this fund series reflects the growing demand for fixed-income products among investors in Latin America and the US Offshore market. In an environment of low-interest rates and high uncertainty, investors are seeking investment alternatives that combine stability and potential returns,” they added.

In addition to the Fixed Maturity Bond Funds, New Capital offers the New Capital USD Shield Fund (a short-duration, high-quality fixed-income fund) and the New Capital Global Value Credit Fund (a fund focused on relative value corporate bonds, designed for investors with a longer-term investment horizon and tolerance for a higher level of risk).

HSBC Mexico Launches a Balanced Fund in Dollars

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HSBC Asset Management Mexico has launched the HSBCMDL Multi-Asset Balanced Fund in Dollars, “an option designed for investors seeking diversification and a global portfolio referenced in U.S. dollars without actively seeking exposure to Mexican assets,” according to the firm.

According to the institution, the fund’s primary goal is to generate long-term returns by investing in dollar-referenced global debt and assets.

The HSBCMDL Fund invests in equities from developed and emerging markets, treasury bonds, and other global debt instruments, providing diversified exposure to the world’s leading economies with a focus on dollar-denominated assets.

The investment process follows HSBC Asset Management’s global guidelines and focuses on active risk and performance management, adapting to changing market conditions to optimize the asset mix over time.

Antonio Dodero, Executive Director of HSBC Asset Management Mexico, explained, “The launch of the HSBCMDL Fund addresses the growing need for investment solutions that align with local market expectations. This new offering also strengthens HSBC Asset Management Mexico’s relationship with clients seeking innovative financial products.”

HSBC also reported that the fund’s availability is 24 hours after execution, with a recommended minimum holding period of three years. It is aimed at both individuals and corporations and operates Monday through Friday from 8:00 to 13:30 (Mexico City time). Various fund series are available to accommodate the specific needs of each investor type.

The HSBCMDL Multi-Asset Balanced Fund in Dollars offers global exposure across various asset classes and geographic regions, with a balanced portfolio of approximately 50% in equities and 50% in debt. The fund’s active management allows investors to benefit from opportunities presented by the global economic environment.

Additionally, investment in pesos with a dollar reference allows investors to capture both financial instrument returns and exchange rate movements. It’s important to note that the fund does not invest in Mexican assets, except for occasional short-term peso cash positions or those implied in collective investment instruments.

“The ideal investor profile includes individuals or entities looking to diversify their portfolio with foreign investments, seeking dollar exposure, and who can tolerate exchange rate fluctuations. This profile also includes those preferring professional management of their investment, with assets distributed according to global market conditions, focusing on a balanced mix of equities and debt,” Dodero explained.

HSBC Mexico provides further information on the fund through its official HSBC Asset Management Mexico page

EJE Investment Aims to Win Over Chilean Investors With Section 8 Real Estate Assets in Miami

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(cedida) Patricio Eskenazi, socio de EJE Investments

EJE Investment, a young international real estate advisory firm, aims to attract Chilean investors with Section 8 subsidized rental properties in Miami. With the Chilean real estate market going through a crisis, local investors are searching for different vehicles to secure rental income, which EJE believes can be found in U.S.-based assets.

“In Chile, the appetite for the real estate market is negative,” highlights Patricio Eskenazi, a partner of the firm, in an interview with Funds Society. “But that doesn’t change the fact that people love investing in real estate, because it’s a very solid asset,” he adds, with tangible guarantees and monthly cash flows.

When people invest in real estate domestically, they can do so directly or through a fund that invests in this asset class. In contrast, foreign investment has a broad range of funds available but high entry barriers for direct purchases.

“Why did people invest in an apartment in Independencia or Huechuraba and not in Miami? The simple and obvious answer is that it’s what was accessible and what they knew how to do,” he says. On the other hand, although investors hear about good opportunities in Miami, they don’t know how to access that market.

Along these lines, Eskenazi highlights that EJE Investment provides comprehensive advisory services, including legal matters, investment structuring, and a network of service providers in the United States, without holding client funds.

This means support throughout the entire process: buying the houses, negotiating, hiring a manager, arranging bank loans, legal procedures for registration, tax advice for structuring a company in one of the two jurisdictions, etc.

For clients, the partner explains, “we leave them receiving rents.” Moreover, he emphasizes that clients do not need to set foot in the U.S. to acquire the asset or obtain financing, as there are banks specializing in loans to foreigners.

The Appeal of Section 8

EJE Investment’s approach is anchored in a particular mechanism that, according to Eskenazi, offers a more attractive investment profile: the Section 8 subsidy, a government program aimed at people who have difficulty paying the full rent.

“It’s much more profitable and much safer,” explains the professional, with less risk of non-payment since “you receive two payments: one from the tenant and another from the U.S. government.”

On average, the U.S. Treasury pays around 80% of the property’s rent, with the remaining 20% covered by the family. In some cases, this portion can reach 90% or even 100%, reducing the portion of cash flow at risk of non-payment by the tenant.

Additionally, Eskenazi notes that these are more profitable businesses since houses rented by families with Section 8 subsidies rent for 20% to 30% above a non-subsidized rent.

“If you buy one of the houses we’re always buying, at $440,000, you’ll rent it in the private market for around $2,400 or $2,500. But if you rent it to a family with Section 8, you’ll rent it for about $3,000,” illustrates the partner at EJE.

Regarding assets, the firm works with all types of residences, including houses, apartments, and townhouses, which are already built. The average age is between 10 and 15 years, he notes.

Although they don’t rule out evaluating opportunities in other markets, the Chilean firm is focusing on Miami for now, where they see many opportunities. “For now, we’re set for a good while in Florida,” says Eskenazi, adding that this area is more familiar to Latin American investors.

In the first half of the year, representatives from the real estate investment firm traveled to Kansas and found attractive investment opportunities, but people find it more challenging to venture into that city compared to Miami.

Expanding Access

“We’ve done extremely well, and we started less than a year ago. That’s because people who had bought something here in Chile realized that the rents aren’t very good,” explains Eskenazi. Part of the interest also comes from a segment that traditionally hasn’t had access to this sector: people outside the high-net-worth circle.

The largest portfolios in the Chilean market have been participating in this business for years with a different dynamic. “The institutional world and larger investors seek very large investment sizes,” explains EJE’s partner, adding that this justifies mobilizing the necessary resources to structure the investment.

EJE’s model, meanwhile, offers access to investors who can invest around 3,000 UF, equivalent to around $123,000. The cheapest property costs 6,000 UF ($246,000), but half covers the down payment, says Eskenazi.

In the range between that amount and the band of $30 million to $50 million, “there’s been a lot of interest,” says the professional, with higher-net-worth investors purchasing multiple assets.

“We started with the high-net-worth segment, but a lot of people who wouldn’t be considered high-net-worth in the Chilean industry have reached out,” adding that “you don’t need to be high-net-worth to buy a house.”

The backdrop is that “investment alternatives in Chile are quite limited now,” according to the executive. In this context, two trends work in favor of EJE’s model: the rise of alternative assets in Chile and the outward flow of local investments abroad.

For now, the firm plans to continue focusing on Chilean clients. In the future, when they seek new markets, they anticipate doing so alongside local partners familiar with specific legal frameworks and who can instill trust through local familiarity.

Origin Story

The search for different investment opportunities brought together the four partners who founded EJE Investment last year.

Eskenazi comes from the financial industry, where he is a familiar face. Alongside a 20-year career, which includes positions in Itaú Chile’s private banking, MCC Inversiones, Banco Penta, and the family office Monex Inversiones, according to his LinkedIn profile, the executive is a panelist on the economic radio program “Más que números.”

Seeing that the local Chilean market was “bad,” he began looking for foreign alternatives, leading him to meet brothers Rodrigo and Jack Jaime. Rodrigo has a 17-year real estate career, including the development and construction of six buildings for Chile’s largest senior housing operator, and a diploma in Real Estate Law from the Universidad de los Andes. Jack also has studies in this field and holds the CIPS (Certified International Property Specialist) designation from the National Association of Realtors in the U.S.

According to Eskenazi, the Jaime brothers had been investing in Section 8-related individual assets in Miami on their own for over 10 years when they met. Then, the idea arose to leverage their collective expertise into a service for others. “If the market is so large and deep, and we can buy a house every three to five years, why not do it for clients as well?” he illustrates.

While formulating what would eventually become EJE Investment, they concluded that a key ingredient was guiding investors through the entire process, “taking the client by the hand.” This led them to bring on a fourth partner to handle legal and tax advisory: attorney Patricio Escobar, a tax law specialist who led the Tax and International Transactions practice at EY in Miami—where he lives—and Boston.

Hamilton Lane Launches Two New Infrastructure Funds for Clients in Latam and the U.S.

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Hamilton Lane has launched the Global Private Infrastructure Fund (“HLGPI”) and Private Infrastructure Fund (“HLPIF”), offering accredited investors worldwide greater access to private market infrastructure investments, according to a statement accessed by *Funds Society*.

The Hamilton Lane Global Private Infrastructure Fund (“HLGPI”) is available to qualified investors, including high-net-worth (“HNW”) investors and their wealth advisors, in EMEA, Australia, Canada, Latin America, and Southeast Asia.

On the other hand, the Hamilton Lane Private Infrastructure Fund (“HLPIF”) is a closed-end, continuously offered investment vehicle registered under the Securities Act of 1933 and the Investment Company Act of 1940 (“’40 Act”) and is available to U.S. clients, including HNW investors and their wealth advisors.

HLGPI and HLPIF are total return strategies aimed at both capital appreciation and income, designed to provide exposure to a global portfolio of institutional-quality infrastructure assets through a single investment, the firm’s information adds.

“Focused on identifying and capturing strategic opportunities in infrastructure, including direct and secondary investments, the Funds aim to deliver attractive returns and downside protection, along with liquidity through monthly or quarterly redemptions,” the fund explains.

Both HLGPI and HLPIF seek to capitalize on unique opportunities in the electricity, transportation, data and telecommunications, environment, and energy sectors, according to Hamilton Lane.

For over 24 years, Hamilton Lane has developed SMA mandates (as per the English acronym) focused on infrastructure, designed to deliver attractive returns relative to benchmarks for clients of all sizes worldwide. These new vehicles are an extension of Hamilton Lane’s broader infrastructure platform, which the firm has been building since 2000 and includes closed-end funds and SMAs totaling nearly $72 billion in assets under management and supervision as of June 30, 2024, the firm explains.

The SEC Awards $12 Million in Compensation to Whistleblowers

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The SEC announced a $12 million award to be split among three joint whistleblowers who provided critical information and assistance in an enforcement action by the agency.

The whistleblowers offered key information and “extensive cooperation,” which helped expand the scope of the investigation and the charges filed in the enforcement action, and also saved the agency significant time and resources, according to the regulator’s statement. The individuals met numerous times with the SEC’s enforcement staff, and some faced hardships due to their reporting.

“The whistleblowers played a key role in helping the SEC hold wrongdoers accountable,” said Creola Kelly, Chief of the SEC’s Office of the Whistleblower, adding that “even when an investigation is already underway, whistleblowers can contribute by providing new information on misconduct.”

Whistleblower payments are made through an investor protection fund, established by Congress, which is entirely financed through monetary penalties paid to the SEC by violators of securities laws.

Under the law, whistleblowers may be eligible for a reward when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 to 30 percent of the money collected when monetary sanctions exceed one million dollars.

As established by the Dodd-Frank Act, the SEC protects whistleblower confidentiality and does not disclose any information that could reveal their identity.

Managers Believe That Small and Micro Caps Will Benefit From the Fed’s Rate Cuts

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Small y micro caps beneficiarán de recortes de la Fed

The latest survey by New Horizon Aircraft reveals that 75% of fund managers specializing in the small and micro-cap segment believe the interest rate cut cycle initiated by the U.S. Federal Reserve (Fed) will considerably benefit the valuation of these companies. This survey included fund managers from the U.S., Canada, Europe, the Middle East, and Asia, who collectively manage assets worth $82.4 billion.

Another conclusion from this survey is that 59% of managers believe the Fed will cut rates at least once more in 2024, while 16% think there will be only one more rate cut before the year ends. Additionally, fund managers expect the Fed to continue with cuts: 19% anticipate three cuts in 2025, 59% expect two cuts, and 20% predict only one cut.

According to the survey’s authors, this expectation of multiple rate cuts aligns with 82% of the surveyed managers who believe U.S. interest rates will have fallen from the current 4.9% to 4.3% or lower by the end of 2025. Approximately 14% even think the rate could drop below 4.1%.

Since 40% of the debt of companies in the Russell 2000 Index is short-term or variable rate, compared to around 9% for companies in the S&P, 89% of fund managers expect that the anticipated drop in interest rates will have a more positive impact on the valuations of micro and small-cap companies than on large-cap companies. Seven percent of fund managers were unsure, and only 4% disagreed.

Experts caution that although U.S. inflation decelerated to 2.5% year-over-year as of August 2024, it still remains above the Federal Reserve’s 2% target. Nevertheless, 89% of respondents believe the 2% target will be achieved within the next 12 months, specifically in the second quarter of 2025.

The survey authors emphasize that these perspectives bode well for the valuations of micro and small-cap companies, as evidenced by the 99% of respondents who expect the economy in 2024 and 2025 to provide a more favorable basis for the valuations of these smaller firms. In the current context, with global small-cap companies trading at the steepest discount to large caps in over 20 years, the same proportion (99%) of fund managers expect micro and small companies to generate solid returns over the next 12 months.

“Expected Fed rate cuts could significantly benefit small and micro-cap companies. This view is shared by the fund managers who participated in our research, all of whom specialize in managing funds that invest in emerging small and micro-cap companies with high growth potential. Small-cap companies with unique and transformative technologies are once again in a position to offer investors an opportunity for significant gains,” concludes Brandon Robinson, CEO of Horizon Aircraft.

Managers Are Exploring More Liquidity Solutions, Investment Vehicles, and Value Creation to Strengthen the Momentum of Alternatives

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According to the latest survey from Goldman Sachs Asset Management titled *2024 Private Markets Diagnostic Survey, Charting New Routes,* conducted with 235 institutions and fund managers worldwide, demand for private market assets is expected to continue rising. Investor optimism and expectations of uncovering new opportunities across strategy classes are driving this growth. The survey also indicates a reduction in concerns around potential economic recession or inflation resurgence, with investor attention now focused more on geopolitical risks from global conflicts.

One key finding from the report is that sentiment is generally positive across all asset classes, with fund managers displaying more optimism than wealth managers. Even in the real estate sector, often considered the most challenging asset class, 38% of asset managers see improved investment opportunities, compared to 31% who perceive worsening prospects.

Investors remain confident in venture capital funds and optimistic about infrastructure, believing these assets can continue delivering stable returns through market cycles. Meanwhile, private credit has seen a slight decline in favorability among nearly a quarter of Limited Partners, though net sentiment remains positive.

“Investor sentiment is improving overall, even in asset classes like real estate that faced headwinds over the last two years. Limited Partner focus on macroeconomic risks has diminished as inflation moderates and interest rates drop. However, concerns persist over inflated valuations and their impact on trading volumes,” explained Jeff Fine, co-head of Goldman Sachs Alternatives’ Capital Formation.

According to Dan Murphy, Head of Alternative Portfolio Solutions at Goldman Sachs Asset Management, “Investors are creating asset allocations in new areas of private markets, including private credit and infrastructure, through various entry points such as secondaries and co-investments.”

Key Trends and Concerns

The survey highlights liquidity as a top priority for investors. Fund managers are increasingly exploring liquidity solutions to return capital to investors, as exits are still hindered by ongoing macroeconomic uncertainty and valuation disconnects between buyers and sellers. “While some Limited Partners face over-allocation issues, private markets generally remain underweighted, with strong demand for new entry points like co-investments, secondary investments, and semi-liquid vehicles,” noted Stephanie Rader, global co-head of Alternative Capital Formation at Goldman Sachs Alternatives.

Geopolitical conflict now tops investor concerns at 61%, followed by inflated valuations at 40%, and recession risk at 35%. Limited Partners are relatively more focused on valuation-related risks, recession, and inflation, while General Partners place greater emphasis on interest rates and regulatory challenges.

Due to widespread underweighting, 39% of Limited Partners are increasing their capital deployment, while only 21% are reducing it, a significant change from last year’s 39% reduction. Capital deployment is now concentrated on credit strategies (34%)—where underweighting is most pronounced—followed by private equity (18%), real estate, and infrastructure (10% each).

Challenges in the Industry

To address valuation gaps, General Partners focus on value creation through revenue growth: 63% aim to boost organic revenue via existing channels, and 52% through new channels. Other significant value creation avenues include mergers and acquisitions (45%), margin improvement via technology and efficiency (35%), and introducing new products or services (27%).

As exits remain sluggish and valuations appear inflated, private equity managers are prioritizing profit growth as the primary source of value creation. Strategic sales are expected to remain the primary exit route (81%), followed by sponsor sales (70%), though optimism toward IPO markets has declined. Demand for interim liquidity solutions, such as dividend recapitalizations (54%), continuation vehicles (52%), and preferred shares (44%), is on the rise. In recent years, most General Partners have expanded their capabilities, either organically (46%), through spin-offs (24%), or via acquisitions (5%).

“General Partners are broadening their product offerings in both strategies and structures, often seeking external capital to support these expansion plans,” stated Ali Raissi, global co-head of Goldman Sachs’ Petershill Group.

Sustainability is also a central consideration in private markets, especially for large Limited Partners outside the Americas. Adoption varies based on the asset base, with larger cohorts more likely to integrate sustainable factors and wider stakeholder concerns (84%). “We continue to observe significant attention to sustainable investing from major investors, particularly in EMEA and APAC, although LPs generally have more progress to make toward their goals,” said John Goldstein, global head of Sustainability and Impact Solutions, Asset & Wealth Management at Goldman Sachs.

With the macroeconomic environment relatively stable, Limited Partners and General Partners express growing optimism across all asset classes. They see the post-COVID-19 normalization process ongoing and the long-term growth trajectory of private markets as strong. “New frontiers in AI, investment vehicles, and value creation are increasingly explored, driven by both opportunity and necessity. Looking ahead, we expect both LPs and GPs to continue adapting to an evolving private markets landscape that plays an increasingly vital role across sectors and regions,” Murphy concluded.