Private Assets: Cause for Both Celebration and Caution

February 4, 2020

Investor demand is set to keep rising, but so too is competition.


  • Around one-quarter of the large institutional investors surveyed by Cerulli plan to increase their allocations to mid-market buyout funds, growth funds, and distressed debt during 2020. Nearly half of smaller investors—those with assets of less than €15 billion (US$17 billion)—plan boost their allocation to mid-market buyout funds and distressed debt strategies.

  • Wide private equity funds performance dispersion will continue to increase the pressure on managers that deliver below-median internal rates of return (IRR) to reduce management fees, with contract clauses that favor Limited partners (LPs). Favorable LP contract clauses will include capping administrative expenses and charging management fees on invested capital. However, we believe that the most sought-after managers, those delivering top-quartile returns, will continue to dictate fund terms.

  • Private banks’ average recommended strategic allocation to private equity is 10.9%, yet more than 30% of family offices typically allocate more than 15% to the asset class. High-net-worth (HNW) and ultra-HNW individuals typically have slightly lower allocations to private equity than family offices. Cerulli believes GPs that can offer deal overflow, knowledge sharing, and increasingly Environmental, social, and governance (ESG) capabilities can improve their competitiveness with family offices.

  • Managers are placing more emphasis on attracting retail clients further down the wealth curve, which is expected to lead to greater allocations. The European long-term investment fund (ELTIF) structure has been slow to garner interest, but the recent rise in notable fund launches focused on private markets indicates that managers are increasingly seeing the structure as a way to package illiquid strategies for retail investors.

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