Financial and Monetary Systems

How to broaden access to private markets for greater inclusion

Broadening access to private markets can serve as a catalyst to improving financial inclusion.

Broadening access to private markets can serve as a catalyst to improving financial inclusion. Image: Getty Images/iStockphoto

Matthew Danzig
Managing Director, Technology Investment Banking, Lazard
Katharina Focke
Investment Banking Associate, Lazard
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Financial and Monetary Systems?
The Big Picture
Explore and monitor how Financial and Monetary Systems is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Financial and Monetary Systems

  • Investing in a broad and diverse set of financial products can serve as a catalyst for wealth creation and empower individual investors.
  • But many retail investors do not have exposure to the full spectrum of alternative 'asset classes' or 'private market' opportunities.
  • Here's how we can increase financial education and opportunities by addressing the challenges of retail access to private markets.

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.

Have you read?

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.

The growth of private markets

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.

Global growth in private markets by assets under management.
Global growth in private markets by assets under management. Image: Broadening Access to Private Markets, World Economic Forum

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:

Private vs public 10-year compound annual growth rate
Private vs public 10-year compound annual growth rate Image: Broadening Access to Private Markets, World Economic Forum

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.

Estimated impact of an allocation to private markets on returns and volatility
Estimated impact of an allocation to private markets on returns and volatility Image: Broadening Access to Private Markets, World Economic Forum

Historical lack of exposure to private markets

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.

Making private markets more inclusive

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:

  • Financial advisors can raise product awareness through investor education that is supported by better training and product knowledge. Of course, these efforts need to be supported by guardrails that contemplate risk and suitability.
  • Policy-makers should continue to evolve and tailor the accredited investor definition to ensure it is not overly restrictive and allows those that are financially literate or adequately sophisticated to invest.
Discover

How is the World Economic Forum improving the global financial system?

  • The creators of investment products should consider tailoring existing products or creating innovative new products to expand access. Reducing investment minimums and increasing liquidity by permitting partial liquidity or trading on secondary markets could make products more accessible and bite-size.
  • The industry can come together to create standardized products or, at the very least, align on reporting structures that have a standardized format that is comparable across products and more easily digestible by investors.

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.

Loading...
Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

European financial institutions are confronting new challenges. Here's how

Kalin Anev Janse and Kim Skov Jensen

May 22, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum