Amid High Stock Valuations, Private Unlisted Assets Appeared as More Suitable Investments for 2025

 

While BlackRock, the largest provider of ETFs, has heavily entered into unlisted private assets, investors in most conventional exchange-traded funds (ETFs) have been rewarded greatly.

 

The largest of these ETFs, the $656bn SPDR S&P 500 ETF Trust (SPY), has delivered a strong 25% return in 2024.

 

The US stock valuations are currently very high by historical standards. U.S. equities now account for 70% of global developed market equity market capitalization in MSCI's broadly focused world benchmarks, up from 30% in the 1980s. However, high valuations made US stocks a cause for concern.

 

Analysts and other industry insiders discussed whether investors should transcend the usual mix of 60% publicly traded stocks and 40% publicly traded bonds.

 

The BlackRock Investment Institute, an in-house think tank owned by BlackRock, the world's largest asset manager, reported in December that artificial intelligence and the transition to a low-carbon economy are initiating a new industrial revolution that requires investment in private assets. They argued that investors should invest in private markets a strategy that handles the change.

 

BlackRock also supports its argument with action. The firm recently announced the launch of several private market funds for wealthy European clients.

 

However, retail investors are less likely to access private markets because of their requirements for long-term investments that may be difficult to exit and their illiquidity.

 

The data also confirms that retail investors have few opportunities in private assets. The European Parliament's September report shows that the fund structure of the European Long-Term Investment Fund (Eltif), which is open to retail investors, is only 57, with total assets of only €2.4 billion.

 

Although retail investors rarely participate in private asset structures, managers pursue ways to increase retail participation in the private credit space.

 

Kenneth Lamont, head of Morningstar, said that more Eltifs and Long Term Asset Funds (Ltafs) had been launched in the UK within 2024 than in any year since the initial year.

 

Regarding this, he reminded fund providers that it was necessary to make associated risks clear and visible and their access safe and liquid before boosting retail participation in private markets.

 

Lamont also cautioned investors that they should be wary of the push for public-private marketplace convergence, noting that investors did not need to accumulate collateralized loan obligation ETFs, particularly CLOs.

 

Moreover, Lamont argued that if private assets became more accessible to retail investors, expanded participation could erode potential future returns as the market worked more efficiently with more participants, reducing mispriced assets and profit opportunities.

 

He added how private asset providers provide liquidity exposure to illiquid assets is the focus.