Investors Hungry for Private Markets in Their ETFs

Concerned about an AI bubble? Sign up for The Daily Upside for smart and actionable market news, built for investors.

Pretty much everyone is itching to get into the invite-only private market party.

Nearly all (99%) of the 325 global investors firms surveyed by Brown Brothers Harriman said they would consider buying private market assets in an ETF wrapper. Half of the respondents, representing institutional investors, advisors, fund managers, private banks and wealth managers across the US, Europe and China, managed more than $1 billion in assets. It’s proof that private markets have ballooned in recent years as companies stay out of the public market longer and reach eye-popping valuations. It’s also a growing area of interest for clients.

“Over the last decade, investment demand for private markets exposure has surged, driven by large institutional investors seeking higher yields and greater diversification potential,” Anna Paglia, chief business officer at State Street Investment Management, told ETF Upside. “We expect the next wave of private market demand will include retail investors seeking exposure to this growing asset class through lower-cost investment vehicles that are tradable, transparent, and provide daily liquidity like ETFs.”

Sign up for The Daily Upside at no cost for premium analysis on all your favorite stocks.

READ ALSO: BlackRock’s New ETF Goes Long on Emerging Market Bonds. Not Everyone Agrees and Some ESG Funds Are Booming. That’s Not the Whole Picture

The Mega-Unicorn Appeal  

Investors who want access to private markets can’t get it substantially in low-cost, tax-efficient ETFs: The SEC prohibits the funds from holding more than 15% in illiquid assets. Those on the market today that promise private market exposure typically have a small exposure to private credit alongside public securities, or invest in publicly traded proxies, like private equity firms such as Blackstone, KKR and Apollo Global Management. But the appetite for more is certainly clear.

Investor interest in private market exposure likely reflects an appetite for private equity rather than private credit, said Aniket Ullal, head of ETF Research and analytics at CFRA. There’s probably strong investor interest in equity exposure to firms like SpaceX, Anthropic and OpenAI, some of which could IPO this year, he said. Data from CFRA shows:

This year through April 24, the total flows into private credit ETFs in the US were only $826 million.

About 94% of those inflows went to the State Street IG Public & Private Credit ETF (PRIV).

Public Meets Private: State Street’s optimistic about the role ETFs can play in expanding investor access to private markets. That’s in part because the firm believes public and private markets are going to eventually converge. “This is a dynamic that we have seen before,” Paglia said. “There’s a segment of the market that’s illiquid, and it becomes liquid due to the evolution of that market. We think private markets are at the beginning of that journey.”

This post first appeared on The Daily Upside. To receive exclusive news and analysis of the rapidly evolving ETF landscape, built for advisors and capital allocators, subscribe to our free ETF Upside newsletter.