• Retail-style vehicles are set to account for at least half of private market flows in the next two years, according to 56% of institutional investors
• Continued geopolitical uncertainty could further increase demand, with investors turning to private markets to reduce portfolio volatility

State Street Corporation (NYSE: STT) today launched its global Private Markets Survey Report “The New Private Markets Advantage”.

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, according to the latest iteration of State Street’s private markets research. ¹

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%) now believe at least half of private market flows will come through semi-liquid, retail-style vehicles marketed to individuals within 1-2 years.

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. 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%) among North American respondents, whose primary response was ‘lowering means-based barriers to entry’ (44%), such as wealth or income minimum thresholds.

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, 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.²

Overall, LPs and GPs both predict a private/public split of 42%/58% in their (or 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).

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% 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.

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, commented: “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%) and infrastructure (26%), while as many as 42% 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 recognizes that economic disruption complicates the development pathway for the new retail-style private market products. On one hand, policymakers may have to prioritize 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% 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.

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%) 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.

Chris Rowland, head of Custody, Digital and Fund Services Product: “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.”

Please click here to download the 2025 Private Markets Research Report.

¹ The study, commissioned by State Street and conducted by CoreData Research, surveyed 500 respondents from buyside investment institutions including private markets specialist managers, generalist asset managers with private markets portfolios, and institutional asset owners across four regions, North America, Europe, the Middle East and Asia-Pacific, in Q1 2025.

² 2024 Private Markets Outlook: An analysis of capital distribution and fundraising in global private markets

About State Street Corporation

State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $46.7 trillion in assets under custody and/or administration and $4.7 trillion* in assets under management as of March 31, 2025, State Street operates globally in more than 100 geographic markets and employs approximately 53,000 worldwide. For more information, visit State Street's website at www.statestreet.com.

*Assets under management as of March 31, 2025 includes approximately $106 billion of assets with respect to SPDR® products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors are affiliated.

© 2025 State Street Corporation

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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.