Retail Revolution to Drive Private Market Flows by 2027
- Business Companies Investments World
Global Business Magazine- 6 minutes read
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, according to the latest iteration of State Street Corporation’s private markets research.
State Street, which launched its global Private Markets Survey Report entitled “The New Private Markets Advantage,” found that the majority of respondents (56%) now believe at least half of private market flows will come through semi-liquid, retail-style vehicles marketed to individuals within 1-2 years.
The Corporation has surveyed of 500 institutional investors, including traditional asset managers, private markets managers and asset owners across North America, Europe, the Middle East and Asia-Pacific.
Product innovation in the semi-liquid fund space is the most recognised enabler of this “retail revolution,” cited by 44% of respondents globally as the best means for driving the democratisation of private markets.
More than two in five (22%) respondents believe retail-style vehicles will be the main fundraising mechanism for private markets, up considerably from 14% 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% of respondents now expect traditional fundraising to account for most flows, down from 51% last year.
Donna Milrod, Chief Product Officer and head of Digital Asset Solutions at State Street, said that the democratisation of private markets has been a trend that has been underway for many years; however, 2025 has the potential to be a watershed year for retail allocations to private markets.
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, Limited Partners (LPs) and General Partners (GPs) both predicted a private/public split of 42%/58% in their clients’ portfolios within 3-5 years’ time, which represents a slight increase in their respective current allocations of 39%/61% (LPs) and 38%/62% (GPs).
Shifting Capital Allocation Plans
At the same time, the 2025 data reveals a y-o-y shift in capital allocation plans from emerging to developed markets. Developed Europe saw a significant jump in interest, with 63% of LPs now planning investments in the region over the next two years (up from 43% last year), while other developed markets remained largely steady.
Emerging APAC has seen the biggest decline in forecasted appetite, with just 14% of LPs planning to invest there (down from 25% last year), while emerging Europe dropped to 18% from 21%. The Middle East and Africa also declined significantly, albeit from low bases.
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 noted, 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 positions private markets investments in companies with reduced US exposure would benefit, rather than the US assets. The outlook for ‘quality’ private market assets is therefore significantly clouded by the current environment.
AI Integration
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% of those surveyed said they saw the value in the technology, 83% 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%) of respondents.
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, and 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%) 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% also called on governments and regulators to mandate private companies to give more and better data to their investors.
