Bain & Company recently released a report focusing on the challenges and potential of private asset investing that can be unlocked through digital innovation. Pictured: Bain and Company office building in Dallas, United States.  Photo: Shutterstock

Bain & Company recently released a report focusing on the challenges and potential of private asset investing that can be unlocked through digital innovation. Pictured: Bain and Company office building in Dallas, United States.  Photo: Shutterstock

Bain & Company has highlighted the urgent need for a robust digital market infrastructure to meet the growing demand in private asset investing, given the staggering $8trn to $12trn of household funds available for such investments.

Affluent investors are seeking opportunities to invest in private market assets, but their ability to do so at a large scale is hindered by the absence of adequate support for individual investors, according to a recent from the global management consulting firm Bain & Company.

To address this situation, the firm suggested the implementation of a strong digital system.

The report also pointed out that major wealth and asset management firms are well-positioned to lead these advancements and secure a competitive edge as pioneers, while other companies have the potential to succeed as challengers or quickly follow suit.

Emerging business archetypes

The report outlined five nascent business models intended to tackle the prevailing obstacles that impede the expansion of private asset investment.

These obstacles include hefty administrative expenses, lack of liquidity, intricate lending collateral procedures and significant minimum investment prerequisites.

The firm argued that by adopting these unique archetypes, each with its own distinct features, the sector can unlock new possibilities for wealth and asset managers to gain a competitive advantage.

Unlocking private asset investing for individuals

According to the report, although individuals possess roughly 50% of global wealth, they account for just 16% of private assets under management, which are primarily held by pension funds and institutional investors.

The report further noted a growing interest among high-net-worth individuals (with investable assets ranging from $1m to $5m) and very-high-net-worth individuals (with investable assets ranging from $5m to $30m) to increase their allocations to private market assets, with percentages of 38% and 53%, respectively.

However, the lack of digital infrastructure, transaction standards and transparency in private markets makes broad distribution to individuals challenging, despite many individuals seeking greater diversification and taking note of family offices’ allocation strategies, which favour private assets, Bain & Company stated.

Overcoming barriers to private asset distribution

The firm further emphasisds the importance of overcoming additional barriers in order to develop effective distribution methods for private assets.

It cited challenges posed by the illiquid nature and unpredictable cash flows of such assets, as well as the struggle faced by managers in providing credit against these assets due to the lack of established processes.

Platform partnerships, such as those seen with iCapital and traditional asset management firms, are expected to drive further development and proliferation of private asset distribution in the medium term, stated the report.

Building a sustainable market infrastructure

Looking ahead, Bain & Company said that the establishment of a more efficient, shared and open-market infrastructure is urgently needed to support private asset investing.

This transformation will require a coordinated approach, incorporating distributed ledger technology models, standardised data practices, evolving regulations and centralised infrastructure similar to public markets.

To cater to diverse client segments, private alternative assets must adopt new features enabled by a digital infrastructure while adhering to standards and regulatory requirements.

Lowering initial investment levels, establishing structured liquidity mechanisms, allowing assets as collateral for lending, and automating fund subscriptions, tax documentation and reporting are vital steps toward attracting more investors and facilitating growth.