Private Markets: Is your C-suite ready to open Pandora’s box?
Elena Ghirardotto | Italy
A sea change is underway in the investment world. Returns on traditional asset classes,1 equities, government bonds and cash or cash equivalents, are flattening. But global alternative assets are on an exciting upward trajectory.
Are European financial services players ready to take advantage of the opportunity and mitigate the risks? The transition will require a gear shift in C-suite mindset, competencies, and roles – and the top floors are already switching on the lights.
Change across the financial services spectrum
Private equity and venture capital. Private debt and hedge funds. Real estate, infrastructure, and natural resources. Private markets are increasingly alluring. Despite recent softening, global alternative assets under management (AUM) were forecast to hit $24.5tn by 2028 ($16.3tn at the close of 2023). This represents an annualized growth rate of 8% since 2022. Venture Capital AUM is set to reach $3.8tn by end 2028, with an estimated 14% CAGR over the preceding 6 years. Its share of the total alternatives market will only grow.2
Against this backdrop, the European Long-Term Investment Funds (ELTIFs),3 which invest in private markets, have democratized accessibility to alternative targets. Most European countries operate public investment vehicles investing directly into private equity or VC funds.
Private markets present a sunny upside to asset managers seeking margins and income: higher potential gains and more diverse asset allocation than traditional classes. As more individuals can now access investment targets once limited to institutions, customer bases can grow, too.
Large banks are raising their balance sheet exposure in private markets. In the past, banks guided retail account holders to investments in traditional, regulated markets. Today, advisors can point customers with the right risk profile to private equivalents – including ELTIFs.
Asset managers, insurance companies and institutional investors (such as pension funds) are also stepping into alternatives.
Family offices are becoming more active and sophisticated, acting as institutional-grade allocators, investing directly, or co-investing with private equity in corporates.
Not only are institutional investors affected. To attract new investments, private equity firms must also evolve. Larger players can leapfrog to equity platforms that are inaccessible to smaller rivals, (who may focus on consistent verticals as a differentiator).
But traditional asset and wealth managers cannot rest on their laurels. Failure to evolve means falling behind the competition or tripping over poor decisions. Stock exchanges, government bonds and the private marketplace are very different arenas. In the latter, liquidity is limited, exiting difficult.4 Its relative opacity makes it more difficult to assess an investment target. This calls for acute evaluation and due diligence. But hypervigilance can spell paralysis. This is an athletic balancing act, and no gymnast jumps on the beam without rigorous training.
How could this affect your executive team?
In the financial services ecosystem, existing ‘role species’ must adapt, and new roles are emerging.
- Many boards are still unused to illiquid, alternative asset classes and their evaluation methodologies. . Exploring this unfamiliar (ambiguous) territory heightens the need to resolve the tension between guidance and control (managing risks effectively and mindfully).
- Chief Risk Officers must be skilled in assessing and balancing exposure to new vehicles.
- Chief Investment Officers must shift from the government‑bond‑centric approach, intensifying due diligence and portfolio monitoring.
- The Chief Distribution Officer must fulfill a strategic responsibility to understand - and communicate - alternative products.
- Chief Information/Technology Officers must install the technical infrastructure enabling insights into private markets. AI promises flexible exit possibilities and innovation. Unsurprisingly, it is attracting strong investment. Private equity firms are hiring executives to oversee AI and digital transition, so reassuring investors.
- Chief Human Resources and People Officers must adjust hiring and development strategy. For example, a private equity candidate not only seeks money but meaning: to move the organizational dial. Executives need technical training in a broader menu of asset classes. Literate newcomers can - and should - assure it.
- Compliance Directors must be acutely attentive to EU regulatory frameworks but not obstruct progress.
- Fixed Income, Wealth and Asset managers must actively acquire private market competencies.
- Chief Investment Officers may be supported by a Chief Alternative Investment Officer, leading dedicated private market teams. Some institutions are also introducing Heads of Distribution for private markets, or Heads of Family Capital covering family offices. Demand for Chief Strategy Officers is rising.
Not just a hire, a project
Many family offices lead the private market game, building competencies, hiring executives from private equity, and co‑investing. In this race, smaller financial services firms are the fast-footed hares, larger firms the steady tortoises.
To secure new profiles for large clients, we search beyond national borders. An Italian bank may hire a Chief Strategy Officer from a foreign equivalent, or from a private equity firm. A sovereign fund may move a senior executive from the Middle East to Italy. But clients also need open minds; many are still hesitant. We understand the tension: complying with tightening regulation whilst venturing into strange new territory.
Treating the hire as a project resolves that tension for a sustainable outcome. Consider a bank employing a candidate from private equity. Introducing an executive tasked with firing up a complex business engine is a strategic endeavor, designed and board-approved upfront. In any search, the profile must be clearly defined, the mutual motivations, goals, tools and budget understood. The unfamiliarity of this transition only emphasizes the need for pre-work. Once on board, the incomer needs strong stakeholder management to engage and align the key players.
Private markets require capabilities, judgement, and knowledge that many financial services leadership teams still lack. Fresh profiles will bring the technical literacy, risk mindset, and strategic agility to safely navigate the new. When it comes to the hiring project, a few days’ preparation can save years of remedial work down the road.
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1 Guberti, M., (2023). ‘What Are Asset Classes?’ US News. Aug. 28, 2023. An asset class is a group of investments that share similar characteristics, behave similarly in the market, and are subject to the same regulations. Grouping investments into asset classes helps investors diversify their portfolios, manage risk, and align investments with financial goals. Each class has distinct risk and return profiles, suiting it to different investment strategies and time horizons.
2 PREQIN, (2023) ‘Industry growth softening as global alternatives market AUM to reach $24.5tn by 2028. Oct. 17, 2023 (GLOBE NEWSWIRE). Asset classes include private equity, venture capital, private debt, hedge funds, real estate, infrastructure, and natural resources.
3 EU‑regulated funds designed to channel long-term capital into infrastructure, SMEs, and other non-listed companies
4 ELTIFs mitigate those constraints with semi‑illiquid products.
