Retail rush in private markets is alarming institutional investors: 'Bigger issues down the road'
HS 02/10/2025
SINGAPORE — For decades, private markets have been the preserve of pension funds, endowments and sovereign wealth giants. Now, that exclusivity is fading. More wealthy individuals are getting invited into a once-closed club reserved for long-term investments from large institutions — and that is ruffling feathers. The trend has been described by experts as the democratization of private markets: looser eligibility rules, feeder funds that pool money from smaller investors and channel into larger funds, and products that mimic mutual funds but invest in private assets. In the U.S., President Donald Trump’s August 2025 order allowed retirement solution providers to invest in private equity and other alternative assets, allowing greater access to private markets for everyday savers. It could lower returns. And it could lead to bigger issues down the road. Group CIO at GIC Bryan Yeo Further, major private market asset managers from KKR to Blackstone to Apollo have been rolling out vehicles that allow smaller-ticket investments compared to the $8 million-plus average commitment from their traditional investors such as pension funds, endowments and insurance companies. “We’re seeing that trend pick up. We do think private markets over time will get increasingly commoditized and democratized,” Bryan Yeo, group chief investment officer of Singapore’s sovereign wealth fund GIC, said at the Milken Institute Asia Summit held in Singapore. In the United States, retail investors are those with net worth under $1 million (excluding primary residence) and income under $200,000. Institutional investors, also known as limited partners or LPs, come with deep resources, due-diligence teams and the ability to lock up capital for several years. They have been private markets’ biggest backers, and now the entry of retail investors has them worried. “If there is going to be a flood of money coming in the next 12-18 months, that could be a problem because that would mean deployment of large amounts of inflows into what’s a limited set of good opportunities, which could then lead to a lowering of underwriting standards,” Yeo said. “It could lower returns. And it could lead to bigger issues down the road.” Rising worries During the Milken Institute Asia Summit, other experts warned that retail inflows could distort pricing, erode returns and destabilize fund structures designed for long-term investments or patient capital. “Traditional institutions have been very concerned about the influx of private wealth money and raising of private wealth money across private markets,” said Debra Ng, partner and Asia regional head of Albourne, a consultancy firm for LPs. “We are seeing a concern about alignment,” Ng said at a Milken panel discussion, referring to potentially differing incentives and liquidity expectations among retail investors, fund managers and LPs. Geeta Kapadia, chief investment officer at Fordham University, echoed similar concerns, cautioning that mass retail flows could upend how private markets function. “Part of the selling point of investing as an institution is that you are able to take the illiquidity risk, the time risk, and you’ll be rewarded for that. And I worry that the flow of retail investors … could have an impact going forward,” she said at a separate Milken panel. Traditionally, PE funds have been designed for decades-long commitments and infrequent cash flows, while individuals generally want quicker returns and higher liquidity. “Sometimes they just don’t connect,” Kapadia said. If institutional and retail investors’ goals diverge, private markets could lose their long-term focus. Managers may hold more cash or shorten deal horizons to meet retail liquidity demands, the speakers concurred. During times of stress, sudden retail redemptions could force asset sales at discounts, triggering liquidity crunches and pricing shocks in what have generally been stable markets. Yup Kim, chief investment officer of Texas Municipal Retirement System highlighted differences in alignment, noting that retail investors may also have a “greater appetite for returns” and are less margin sensitive than institutions. Margin-sensitivity refers to being focused on fees and net cost efficiency — institutions like pensions and endowments often negotiate hard on management fees, performance fees, and deal terms. “A lot of institutional investors are concerned,” he said. ‘Semi-liquid’ alternatives Private-equity managers are aware of their traditional investors’ concerns about retail participation. Their solution: semi-liquid funds. “What we have seen is a proliferation in the emergence of semi-liquid vehicles. They allow investors to come in and out on a monthly or quarterly basis,” said Wen Ting Geok, Mercer Alternatives’ head of private equity in Asia. “It’s not fully liquid, but then it really gives them exposure to the asset class that is generally on the private side,” she told CNBC. According to Deloitte , the number of semi-liquid funds nearly doubled to 455 in 2024 from 238 in 2020. A global survey conducted by State Street recently showed that 56% of the institutional investors expect more than half of of the private market flows in the near future to come via retail-style or semi-liquid vehicles. Kapadia acknowledged that semi-liquid funds try to bridge the liquidity gap, but cautioned that investors might not be able to get all their money should they want to cash out. “It may not be as liquid as you think if there’s a stress event.” she said. Another concern cited amongst Milken conference attendees was also the idea of forced buying, and how it could drive up asset prices. “Sometimes, these retail vehicles are forced to deploy capital quickly,” said Texas Municipal Retirement System’s Kim. That is why it’s a “great time” to be a seller in private market as retail-oriented private-market funds are willing to pay much higher prices due to their compulsion to buy, Kim said. “I don’t know that that’s the best underwriting discipline for long term risk, addresses, returns.” Expanding the pie Experts say that private-market democratization is here to stay. Private-equity firms are hunting for new capital pools as institutional allocations mature and growth slows. Over the past few years, private-equity fundraising has suffered a sustained downturn. In the first half of 2025, private-equity funds globally raised about $384 billion, down 17% from the same period last year — their weakest first-half total since the pandemic year of 2020. As markets evolve, we believe democratization done thoughtfully can expand the pie, rather than simply redistribute it. Partner at NewVest Ariel Ezrahi In such an environment, expanding retail-facing funds becomes an appealing lever, providing access to fresh money even as the traditional institutional pipeline weakens, private-equity players told CNBC. “As markets evolve, we believe democratization done thoughtfully can expand the pie, rather than simply redistribute it,” said Ariel Ezrahi, a partner at NewVest, a private markets index manager. “A deeper, more liquid, and more transparent private market ecosystem benefits managers, investors, and the industry as a whole.” Executives such as HostPlus’ CEO David Elia argue that the solution is not to shut retail out but to refine safeguards. “There needs to be differentiation between regulation for what I would call mum and dad, retail investors … and institutional investors … who’ve got the level of sophistication and understanding to effectively identify the right opportunities,” he said. Private markets are expected to grow to more than $20 trillion by 2030 from an estimated $13 trillion currently, according to BlackRock. And retail flows will play an important role in their growth. According to Deloitte’s projections , retail investors’ contributions to private capital could soar to $2.4 trillion by 2030 in the United States from current estimates of $80 billion, and more than triple in the European Union to 3.3 trillion euros ($3.9 trillion) from 924 billion euros. “I do feel the retailization, the democratization story will kind of deepen,” said Ankur Meattle, head of Asia private equity funds & co-investments at GIC. “The prevalence and the acceptance of the asset class is still limited in terms of [retail] investor potential [relative] to the institutions. But over five years, 10 years, it’ll meaningfully broaden.”
