Retail money is emerging as an increasingly important source of private markets funding, according to a new McKinsey & Co analysis.
The just-published McKinsey ‘Global private markets report 2025: braced for shifting weather’ estimates the retail sector has contributed about US$1.5 trillion to the asset class to date with annual fund flows growing “at approximately 16 percent per year since 2020”.
Historically, private markets have been the preserve of institutional or high net worth investors with liquidity concerns and high minimums keeping retail clients out of play.
But the McKinsey says during the last few years private asset managers “have addressed these challenges by setting up nontraditional vehicles and innovative fund structures that retail investors can access more easily”.
“Retail investors that need higher (and more frequent) liquidity ideally want private market returns with public-market liquidity,” the report says, while for “pension funds and family offices, the increased liquidity provided can play a vital role in overall portfolio construction”.
Despite rising interest from a more diverse investor-base, the McKinsey study found the backdrop for private markets was “decidedly mixed in 2024”.
Private debt once again captured the most investor attention last year while real estate, infrastructure, private equity and, particularly, venture capital muddled through.
“… although global private debt fundraising decreased by 22 percent to $166 billion, the rate of decline was lower compared with other private market asset classes—and was largely driven by the mezzanine substrategy,” the report says.
Meanwhile, private equity saw fundraising fall 24 per cent year-on-year, representing the third annual period in a row of declines.
“Investment returns were muted, especially compared with buoyant public markets.”
It wasn’t all bad news for private equity, however, with McKinsey detailing some green-shoots including an uptick in distributions and a “more benign financing environment”.
“There were some industry pockets that continued to face rough weather,” the report notes. “Venture capital (VC) recorded a bigger decline in deal count and lower growth in deal value than other private equity sub-asset classes globally.”
Both private real estate and infrastructure also saw a drop in fundraising activity last year compared to 2023, although the asset classes showed some signs of resurgence in valuations and investor interest.
“Infrastructure also appears to be the asset class in which the greatest number of investors want to increase allocations in the next 12 months,” the study says. About 46 per cent of respondents in a McKinsey survey planned to invest more in unlisted infrastructure in the year ahead.
Regardless of the headwinds, the report says the private markets participants have shown “resilience… as they navigate an industry in transition”.
McKinsey partners Alexander Edlich, Fredrik Dahlqvist and Warrant Teichner authored the report along with associate, Christopher Croke.
The iconic global consulting firm has been in downsizing mode over the last 18 months, cutting about 10 per cent of its workforce – or about 5,000 staff – across the world, the Financial Times reported in May.