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State Street Bank investigates the challenges faced by private market investors and potential solutions amid shifting macroeconomic and geopolitical conditions

Investors in private markets are being forced to adapt to new macroeconomic, financial market, and geopolitical dynamics. In this challenging global environment, deep-rooted, strategic operational changes to the efficiency and effectiveness of investment operations, especially regarding data management and analysis, are more crucial than ever. 

In this report, we examine the challenges private market investors are facing and explore potential solutions. Our findings are based on research and analysis by experts across State Street together with a detailed survey of nearly 500 large institutional investors from around the world. 

Key findings include:

• Despite significant global headwinds, institutional investor interest in private markets is greater than ever. Three quarters of respondents to our survey said they were expecting to invest as much or more in private markets in the coming year.
• However, more than two thirds said higher interest rates meant the cost of leverage typically required for private assets was making it harder to invest, with more than half increasingly looking at traditional fixed-income where they had previously incorporated private assets in their yield-generating portfolios.
• New challenges have also generated a new focus on deal quality. Higher inflation makes a higher return demand on each deal entered into. The current macro environment narrows the scope of opportunities available to investors placing them in greater competition both to get into deals and to offer their clients chances to do so.
• Nearly two thirds of the respondents said improving their data management processes would confer a competitive advantage on them, but more than half also admitted to wasting considerable time and resources on manual data management and transfer processes.
• Respondents recognized retail demand for private markets is growing and saw potential for product innovation, appropriate regulation, and digital tokenization to play a role in bringing them into the space. However, they were skeptical that the transition could happen soon, predicting the period of relatively scarce opportunities and increased competition outlined above would continue for several years.

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