State Street Corporation has launched its global Private Markets Survey Report, “The New Private Markets Advantage”.
The firm writes that among the key takeaways, institutional investors are anticipating a significant uptick in retail allocations to private markets in the next two years, with retail investors set to become the main source of private market fundraising in this period,.
The survey of 500 institutional investors, including traditional asset managers, private markets managers and asset owners across North America, Europe, the Middle East and Asia-Pacific, finds that the majority of respondents (56 per cent) now believe that least half of private market flows will come through semi-liquid, retail-style vehicles marketed to individuals within one to two years.
Product innovation in the semi-liquid fund space is the most recognised enabler of this “retail revolution”, cited by 44 per cent of respondents globally as the best means for driving the democratisation of private markets. Recent examples range from the launch of pioneering funds like private asset ETFs to structural innovations such as the UK’s LTAF and EU’s ELTIF 2.0 rules.
Notably, such innovation ranked slightly lower (37 per cent) among North American respondents, whose primary response was ‘lowering means-based barriers to entry’ (44 per cent), such as wealth or income minimum thresholds.
More than two in five (22 per cent) respondents believe retail-style vehicles will be the main fundraising mechanism for private markets, up considerably from 14 per cent last year. While enhanced appetite from retail investors is in part driving this demand, a drop-off in expectations for traditional fundraising from institutional investors is also contributing: just 39 per cent of respondents now expect traditional fundraising to account for most flows, down from 51 per cent last year.
Donna Milrod, chief product officer and head of Digital Asset Solutions at State Street, commented: The democratisation of private markets is a trend that has been underway for a number of years; however, 2025 has the potential to be a watershed year for retail allocations to private markets. Distribution to wealth channels and retail fund flows could become the dominant contributor to future fundraising. Against this backdrop, we are pleased to see respondents recognising the critical role that innovative fund products and structures are playing in fuelling and enhancing this trend as distribution broadens from institutional to mass affluent to retail over the coming years.”
‘Flight to quality’ now entrenched in investment strategies, as anticipated rate of private markets growth slows
This year’s findings support indications from earlier State Street research that the higher interest rate environment which began in the early 2020s has led to a growing focus on due diligence and risk/return assessments among investors, which has in turn prompted a pivot away from riskier private assets and towards a smaller pool of high-quality options.
Overall, LPs and GPs both predict a private/public split of 42 per cent/58 per cent in their (or their clients’) portfolios within 3-5 years’ time, which represents a slight increase in their respective current allocations of 39 per cent/61 per cent (LPs) and 38 per cent/62 per cent (GPs).
At the same time, the 2025 data reveals a year-on-year shift in capital allocation plans from emerging to developed markets.
Developed Europe saw a significant jump in interest, with 63 per cent of LPs now planning investments in the region over the next two years (up from 43 per cent last year), while other developed markets remained largely steady. Emerging APAC has seen the biggest decline in forecasted appetite, with just 14 per cent of LPs planning to invest there (down from 25 per cent last year), while emerging Europe dropped to 18 per cent from 21 per cent. The Middle East and Africa also declined significantly, albeit from low bases.
State Street contends that this preference for developed markets, in conjunction with more modest growth in allocations, constitutes a flight to quality (or flight from risk) in institutions’ private markets strategies.
Scott Carpenter, global head of Alternatives at State Street, says: “Private markets remain on a robust growth trajectory, though the pace of expansion as a share of portfolios has moderated from the exceptional levels seen pre-2024. The renewed macroeconomic uncertainty linked to US trade policy, following so immediately from the inflation shock of the pandemic years, is only likely to encourage institutions to be even more selective about how they allocate.”
Geopolitical uncertainty complicates the outlook for private market assets and retail-style products State Street’s study highlights that the current geopolitical uncertainty surrounding international trade relationships could support private markets. The smoother, less volatile returns typically delivered by private market assets are a key part of their appeal, cited by around a quarter of respondents as their reason for increasing allocations to private equity (22 per cent) and infrastructure (26 per cent), while as many as 42 per cent said the same for private credit.
However, the report underlines that trade-related uncertainty is likely to distort the definition of ‘quality’ in ways specific to the economic environment that ends up occurring. As an example, when polled prior to ‘Liberation Day’, respondents across all regions and across all private market asset classes said that they expected to find the most investment opportunities in North America over the next two years. In contrast, State Street’s research now notes, among other hypotheticals, a scenario whereby non-US countries and blocs could take steps to increase trade volumes with one another, rather than with the US. In this dynamic, State Street posits private markets investments in companies with reduced US exposure would benefit, rather than US assets. The outlook for ‘quality’ private market assets is therefore significantly clouded by the current environment.
Further to this, State Street recognises that economic disruption complicates the development pathway for the new retail-style private market products. On one hand, policymakers may have to prioritise other economic policy challenges over the reforms required to facilitate the development of these funds. Compounding this, if the underlying assets in retail-style products lose value for a prolonged period, individual investors may negatively associate the funds with the broader macroeconomic environment, reducing demand for the funds.
On the other hand, the research says, in a period of restrictive economic conditions and fiscal tightening, governments may come to see retail flows as a way to increase funding to their domestic priorities (e.g. defence). Such a shift may prompt greater legislative and regulatory attention on the reforms needed to develop retail-style products, suggests State Street.
AI integration key to the success of institutions’ private markets operations
As demand for private assets grows, institutions are increasingly recognising the value of Generative AI and Large Language Models (LLMs) in enhancing their private markets operations. While in last year’s survey only 58 per cent of those surveyed said they saw the value in the technology, 83 per cent are now planning out cases for the technology to generate analysable data out of unstructured private markets information from their operations. Correspondingly, planned technology expenditure is up for the overwhelming majority (69 per cent) of respondents.
While GPs and LPs identified a broad range of use cases for these innovations, from analysing company reports to distributions, loan agreement documents, purchase/sale documentation and sustainability information, performance analysis is where most said the technology would prove “most useful”, both at a portfolio level and for individual holdings.
Around a third of respondents (34 per cent) agreed that technology development enabling more frequent, timely and high-quality data is an essential factor in making private markets accessible to a wide range of individual investors, while 37 per cent also called on governments and regulators to mandate private companies to give more and better data to their investors.
Chris Rowland, head of Custody, Digital and Fund Services Product, says: “We believe that portfolio liquidity starts with data liquidity. This year’s results show that institutions are moving from hypothetical to real implementation of AI-based solutions in their private markets operations, and those at the forefront of this innovation will gain a significant advantage.”
