Emerging Opportunities in Private Markets
In Pensions & Investments recent industry intel report, Dadong Yan explores how portfolio finance is opening new pathways for stability, diversification and yield in today’s uncertain environment.
SPECIALIZED STRATEGIES GAIN GROUND
GP stakes investing and portfolio finance are attracting investors in search of stability, diversification and yield.
Private markets continue to be a major focus for institutional investors pursuing diverse sources of return amid an uncertain economic and geopolitical environment.
Assets in private markets strategies—including private equity, private debt, real estate, venture capital and infrastructure—are expected to grow at a 9% compound annual growth rate through 2033, when AUM is expected to reach $59 trillion, according to Bain & Company.
Yet in some of the more overcrowded segments, concerns are emerging around liquidity, rising defaults and declining valuations. That’s encouraged more institutional allocators to turn their attention to expanded and relatively untapped avenues within private markets investing to access diversification, stability and yield.
Two such areas are general partner stakes investing—acquiring minority ownership interests in private asset managers—and portfolio finance, which refers to senior secured lending solutions backed by diversified portfolios of private market assets, including corporate credit, real estate debt, secondary portfolios and GP interests. While neither is new, both strategies are benefitting from the explosive growth in private markets amid the heightened demand for liquidity.
“The most powerful secular trend is the growth of private markets,” said Dadong Yan, head of Portfolio Finance at Barings. “Over the last decade, we’ve seen investors increasingly seek to increase their overall allocations to private markets, as well as those looking to diversify and gain exposure to different parts of private markets.”
For portfolio finance, growth has been driven by both demand and supply factors. Historically, “banks provided portfolio financing from their own balance sheets, but those balance sheets haven’t kept pace with the rapid expansion of private markets,” Yan said. “As a result, a funding gap has emerged — one that institutional capital is now stepping in to fill.”
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