There is a growing debate in the wealth management industry about how to democratise access to private markets. Institutions have long subscribed to the investment case: private assets offer attractive long-term returns that are diversifying for traditional equity-bond portfolios. Yet, retail investors have largely lacked routes to invest in what has been perceived as a gated opportunity.
Recent consumer research undertaken by M&G[i] confirms that there is strong retail investor interest. 75% of investors, and 81% of advised investors, say that consumers should have routes to invest in private assets. Moreover, 68% of investors, and 79% of advised investors, say that if there were an easy-to-access fund which included private assets, they would consider investing in it.
So how do advisers provide access to their clients? Private markets have typically been accessible only to institutions or ultra high net worth investors principally due to high minimum investment thresholds. A combination of illiquidity, risk, and complexity has made it difficult for asset managers to offer effective investing routes for retail investors.
Leaning into the liquidity issue
Due to the way they are structured, many mainstream multi-asset funds struggle to invest in less liquid, private assets while providing daily liquidity. There is an another way, however. At M&G, we have been investing heavily in private markets through our £64bn PruFund range for over 20 years.
Our flagship fund, PruFund Growth Fund, includes a c.28% allocation to unlisted, private markets. This includes allocations to real estate, infrastructure, private equity and private credit, as well as smaller allocations to commodities and other strategies.
PruFund is part of the £128 billion Prudential With Profits Fund, a pooled investment fund with a proven smoothing mechanism and a well-capitalised balance sheet. It is this fund scale, structure and balance sheet strength that allows PruFund to offer mainstream investors a rare combination of daily, liquid trading and significant exposure to high-quality private assets. By growing at an expected growth rate informed by our long term modelling of likely future capital market returns, PruFund separates the underlying value of the assets invested in from the daily price that units can be bought and sold.
As a combined asset owner (Prudential Assurance Company, a subsidiary of M&G plc, owns the Prudential With Profits Fund) and asset manager (M&G Investment Management), M&G offers everyday investors a convenient way to access opportunities in private markets globally, which draws on the established expertise required to invest in more complex private asset classes.
Private assets rely heavily on the research and expertise of in-house managers to assess performance. While fees may be higher, this reflects the complexity involved and the illiquidity premium rewards investors for taking on the different risks and reduced flexibility in investments that invariably take time to source, analyse, and mature.
Unlocking the private market opportunity
The investment opportunity is huge. Bain & Company estimate that assets under management in private markets will grow more than twice as fast as public markets to reach $60-65 trillion by 2032.[ii] And, the drivers of that growth are increasingly evident. With governments less able to fund the infrastructure we need, it is private capital that is stepping up to the plate to meet the demand.
Private markets will play an increasingly vital role in driving our future prosperity, by supporting much-needed infrastructure projects. Whether it is the high-speed railways, data centres, airports, and power grids that will drive economic growth or investments in our housing, health and educational infrastructure that will help to strengthen our social fabric.
Over the last 20 years, we have seen public stock exchanges shrink in developed markets like the US and UK. Many companies are deciding to stay private or delist, meaning much of the growth opportunity lies off exchange. Remarkably, recent research suggests over 80% of the companies in the US, EU and UK that generate revenues over $100m are now private companies. This means that investors in funds that rely solely on public markets are accessing less than a fifth of the total corporate growth potential.
PruFund has invested over £2.5 billion into unlisted high-growth private companies. Examples include housebuilders, such as Greencore, specialising in low-carbon and energy-efficient homes, and Zenobe, an innovative company electrifying buses and trucks to accelerate the UK's energy transition.
Dialling up diversification: is 50/30/20 is the new 60:40?
A key benefit of private markets is the genuine diversification they can offer to investors in equity-bond portfolios. One common pitfall is to believe that multi-asset portfolios are sufficiently diversified, by geography for example, when they may ultimately be exposed to the same underlying risks.
Some multi-asset funds sail relatively close to the traditional 60:40 equity-bond construct, with only modest provision for alternatives. PruFund, on the other hand, has significant exposure to private assets and is ultimately diversified across 36 asset allocation building blocks, 40 sub-asset types and up to 100 individual strategies.
Private assets offer sources of risk and return that are distinct from equity and bond markets. For example, in inflationary environments, infrastructure and commercial real estate offer diversification benefits thanks to their ability to generate real cash flows.
There is growing recognition across the investment industry that the traditional 60/40 portfolio may no longer be optimal for the future. Increasingly, thought leaders are advocating for a more diversified approach—one that includes stocks, bonds and a meaningful allocation to private assets such as real estate, infrastructure, and private credit.
This perspective aligns closely with the structure of the PruFund Growth Fund, which already incorporates significant exposure to private markets at the highest asset class level (fixed income, real estate, alternatives). For advisers seeking to diversify client portfolios beyond public markets and tap into the potential of private assets, PruFund offers a ready-made solution and convenient route to unlocking private market opportunities for their clients.
[i] For more information, please click here.
[ii] Bain and Company, Avoiding Wipeout: How to ride the wave of Private Markets
