Morgan Stanley sees 12% CAGR for private capital market over next five years

Bridge Investment group

07/10/2022 17:09

Oct 7 (Reuters) - Private capital market is set to grow
at a 12% annual rate on a compounded basis to $17 trillion in
assets under management (AUM) over the next five years, Morgan
Stanley analysts said on Friday.
    As one of the highest-returning asset classes in past years,
the market stands at about $10 trillion, representing about 9%
of global third-party AUM, according to the brokerage. The
industry includes 
    Morgan Stanley listed five key factors powering its rise -
democratization of the markets, growth in private credit,
increased infrastructure investments, rise of alternative
liquidity options and focus on ESG investments. 
    "We see private market firms increasingly introducing
products and strategies across the risk/return/liquidity
spectrum, with wrappers and vehicles that cater to different
investors," the brokerage said.
    These factors could help the industry to tap into a total
addressable market worth over $100 trillion, Morgan Stanley
added. 
    "An expanded sandbox of private market capabilities makes
'alternatives' less alternative, instead opening a path for
private markets as a substitute for traditional fixed income and
equity," it said.
    Morgan Stanley, however, acknowledged near-term challenges
on a weak macro backdrop and recession concerns.
    "It's less clear whether in a meaningfully higher interest
rate environment, investors will continue to sacrifice liquidity
for excess return," the brokerage said.
    "Our growth thesis is predicated on continued, relative
private-market outperformance relative to public markets, and
asset allocation shifts in favor of private markets."
    Morgan Stanley prefers asset managers rated "over-weight"
such as Blackstone  BX.N , P10  PX.N  and Bridge Investment
Group  BRDG.N , citing diverse earnings streams and a high
proportion of fee-related earnings.
    It also highlighted "equal-weight" players like Ares
 ARES.N  and Goldman Sachs  GS.N  for being "attractively"
positioned with exposure to retail, private credit and ESG.
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 (Reporting by Siddarth S in Bengaluru; Editing by Anil D'Silva)
 ((Siddarth.s@thomsonreuters.com;))