Each month, Mercer brings together in-house subject matter experts, employee advocates and external thought leaders for an online discussion of the most pressing issues. The program is called #MercerChats and takes place entirely on Twitter, where individuals around the world engage with Mercer’s intellectual capital and other leading thought leadership to share insights and discuss solutions to help organizations thrive. Below is a summary of our November 2022 tweet chat, highlighting some of the key themes discussed and insights shared.
Ever-shifting, ever-growing; private markets are a new frontier of investing. They balance incredible risk for investors with the opportunity for returns, and for that reason, they’re gaining traction within the broader investment community.
But private markets are a diverse and amorphous pool of assets that vary from garage start-ups to real estate developments to natural resource commodities, so it’s incumbent upon every investor to determine “why” and “how” they want to work them into their own portfolio. Despite this inherent variability, it’s clear for many investors the “when” is now.
To better understand what’s caused so many investors to explore private markets in 2022, as well as to look ahead to what can be expected in 2023, we invited some of the world’s leading voices and Mercer’s own in-house advisors to discuss the future of private markets in our November tweet chat. Below are some of the highlights and key takeaways from that conversation.
Money is the ultimate weathervane. Whether you’re a market analyst or a solo investor looking to build your own strategy, you can learn a lot by watching the flow of capital across markets. When conditions favor big risk and high returns, it’s not hard to find investors willing to place big bets, and alternatively you can sense a bear market when the flow of money dries up. So, what is it about today’s markets that are pushing investors to private investments, and what could it mean moving forward?
The case for private markets is clear. To start, with traditional investments offering low yield, investors are looking elsewhere for more favorable returns, even if that comes with more risk. Patricia Schouker spoke to this during our conversation, noting how private markets could offer up to 13% returns between now and 2025. Additionally, some private markets offer investors insulation from inflation, as Angelika Delen pointed out, which is top of mind for almost everyone in today’s high-inflationary environment. But perhaps most simply, private markets offer another avenue for portfolio diversification, as John Lloyd shared, in a time when it’s needed most. So, no matter if investors are looking to chase high returns or simply play it safe, private markets offer a little of something to everyone.
The growth of private markets as an opportunity for diversification.
Private markets are now emerging as the front runner in investors’ quest for returns in a low yield environment, with assets likely to go up to US$12 trillion by 2025 - that's a growth of 13 % /y— Patricia Schouker
Private markets have various built-in inflation-protection characteristics. Examples are the long-term investment horizon, diversification across economic and business cycles for private markets or floating rates, and lower default rates for private debts.— Angelika Delen
Over the past three decades there has been dramatic growth, providing many new avenues for portfolio diversification as well as arguably better returns compared to public markets.— John Lloyd
Private markets may be a relatively new phenomenon, but that doesn’t mean that they haven’t already gone through their own evolution in recent years. Whereas the term “private markets” may have once conjured up images of early tech investors, today’s reality is very different. Through changing market conditions and growing investor demand, private market investments have emerged as one of the most fascinating and powerful asset classes for those looking to create change.
This was a hot area of discussion amongst our panelists, with many pointing out the power of private markets to create transformational change. Rich Nuzum noted how nimbler private markets are capable of driving innovation by responding to and capitalizing on immediate market needs. This is profound meaning for investors looking for an edge, but it could also help propel meaningful change in the broader world. Consider, for instance, Cara Williams’ observation that private markets also offer a fast track to clean tech and disruptive technology that can mitigate climate change, making it a key pillar of proactive ESG investing. But ultimately private markets really deliver a vehicle for the investment community to direct capital to areas that need it the most, and as Zeenat Patel shared, that means opening up all new geographies to investors. In this way, private markets don’t just create new opportunities for investors, they can open up new possibilities for the world.
Private markets offer an impactful means to investing to mitigate climate change via clean tech or other disruptive technology seeking to decrease or even capture carbon emissions— Cara Williams
Private markets have evolved to become to a major force in driving #innovation. They’ve become highly responsive to the needs of the marketplace while providing patient capital that allows innovative businesses to take a long-term view on growth.— Rich Nuzum
There is greater interest to diversify exposure of a global portfolio not just from public markets to private markets but geographically as well. Consideration should be given to the private markets opportunities offered by emerging markets.— Zeenat Patel
The information herein is intended for informational and educational purposes only. The context represents the views and opinion of the authors regarding the economic conditions or financial instruments referenced here-in. Materials presented should not be construed as investment advice or offer/solicitation of any products or services.