As fears of a correction or downturn in the equities markets continue to build, institutional investors are increasingly shifting capital to the private markets.
A recent Blackstone survey revealed that 51% of institutional investors, including some of the world’s largest pension and sovereign wealth funds, are planning to decrease their allocation in public equities in 2019 (up from 35% the year before). Additionally, they are increasing their exposure to private assets like real estate, private equity and infrastructure (i.e. “real assets”) in search of returns not tied to the volatility of the global equities markets.
“As the economic cycle turns, we believe that private markets can help clients navigate this more challenging environment,” said Global Head of BlackRock’s Institutional Client Business Edwin Conway.
This trend has actually been happening for quite some time. As the number of publicly listed companies has almost halved within two decades, private capital raising has hit peak levels, with private funds raising over $750 billion (and counting) each year. Illiquid, “alternative” assets are no longer fringe investment classes and are instead garnering interest from public pensions and other institutional investors looking to diversify in the midst of uncertain public market conditions.
While the private markets will benefit from this growing influx of institutional money, the trend will come with a price. Institutions will want more transparency, efficiency and access to liquidity while regulatory agencies will want standardizations in the market.
This is where we see digital assets (“smart securities”) playing a critical role in facilitating growth in the private markets. The use of blockchain technology combined with a new type of digitized security will both satisfy institutional demand for increased security and transparency while making the market more efficient. Smart securities will enable investors to track and manage their portfolio as well as satisfy liquidity needs on the secondary market.
It will take time for this market to develop but we fully expect that with more institutional money moving out of the public markets and into the private markets, 2019 will be a pivotal year for smart securities. At Templum, we’re working on building game-changing technology solutions and a regulated market to support smart securities for private assets.