Private Markets: Where Institutional Capital Is Looking Next
Private markets remain a central pillar of institutional portfolios as investors seek diversification, resilient income, and differentiated sources of return in an environment marked by economic uncertainty, geopolitical fragmentation, and structurally higher interest rates.
Assets across private equity, private credit, real estate, venture capital, and infrastructure are expected to continue expanding rapidly over the next decade, with global private markets AUM projected to approach $60 trillion by the early 2030s, according to Bain & Company. That growth reflects not only investor demand, but also the continued retreat of public markets from financing large parts of the real economy.
However, scale has brought new challenges. In some of the most crowded areas of private markets, allocators are increasingly focused on liquidity risk, valuation pressure, higher default rates, and capital lock-up duration. These concerns have prompted a more selective approach, with investors looking beyond traditional fund investments toward strategies that sit adjacent to core private markets exposure.
As a result, attention is shifting to expanded and still relatively underpenetrated segments of the private markets ecosystem — particularly those that offer structural yield, stronger downside protection, and exposure to the economics of alternative asset management itself.
The Rise of GP Stakes and Portfolio Finance
Two strategies gaining notable traction are GP stakes investing and portfolio finance.
Both provide investors with indirect exposure to the growth of private markets, but with different risk-return profiles than traditional fund commitments. Rather than relying solely on underlying asset performance, these approaches allow investors to participate in the infrastructure and cash flows that support the alternatives industry.
As private markets have scaled, so too has the demand for capital solutions — from managers seeking growth capital to funds and portfolios requiring liquidity and balance sheet flexibility. That demand is increasingly being met by institutional investors rather than banks.
“The most powerful secular trend is the continued expansion of private markets,” said Dadong Yan, Head of Portfolio Finance at Barings. “Investors aren’t just increasing allocations — they’re also looking for exposure to different layers of the private markets value chain.”
GP Stakes: Owning the Economics of the Manager
GP stakes investing involves acquiring minority ownership interests in private asset managers, giving investors exposure to management fees, carried interest, portfolio company fees, and long-term enterprise value growth.
Unlike single-fund exposure, GP stakes provide access to a manager’s entire platform, often spanning multiple vintages, strategies, and asset classes. This can result in more diversified and durable cash flows, particularly when focused on firms with stable fee bases and disciplined expansion plans.
Michael Shedosky, Managing Director and Co-CIO at Azimut Alternative Capital Partners, emphasised the appeal of the strategy’s blended return profile.
“When we acquire a GP stake, we participate in recurring fee income that provides downside protection and yield, while retaining private equity-style upside as the manager grows and generates carry,” he said.
Azimut focuses on the lower middle market, targeting firms with approximately $500 million to $3 billion in fee-paying AUM. This segment remains structurally underserved by capital providers and offers more favourable entry valuations, bespoke deal structures, and alignment-driven partnerships.
According to Azimut, fewer than 10% of the more than 2,500 lower middle-market private firms have sold a minority stake — leaving a deep and expanding opportunity set.
Importantly, supply is expected to grow. Data from Coller Capital’s Summer 2025 Global Private Capital Barometer shows that 38% of LPs expect new firm formation to outpace GP consolidation over the next several years, suggesting continued demand for growth capital, succession planning solutions, and balance-sheet optimisation.
Portfolio Finance: Filling the Liquidity Gap
Portfolio finance — typically structured as senior-secured lending against diversified pools of private assets — has also grown rapidly as private markets have outpaced the capacity of traditional bank balance sheets.
Historically, banks were the primary providers of these financing solutions. But regulatory constraints and capital requirements have limited their ability to scale alongside private markets growth.
“Bank balance sheets simply haven’t kept pace,” Yan noted. “That’s created a funding gap — and institutional capital is increasingly stepping in to fill it.”
For investors, portfolio finance offers defensive positioning, contractual cash flows, and asset-backed downside protection. Structures are typically conservative, with diversification across asset types such as private credit, real estate debt, secondary portfolios, and GP interests.
As scrutiny of NAV lending and leverage has increased, well-structured portfolio finance solutions — with strong governance, transparency, and risk controls — are becoming an important tool for both managers and allocators navigating a more complex liquidity environment.
A Maturing Opportunity Set
What unites GP stakes and portfolio finance is their role in supporting the plumbing of private markets at a time when scale, regulation, and capital discipline matter more than ever.
For institutional investors facing denominator effects, slower exit markets, and longer holding periods, these strategies offer:
Exposure to private markets growth without blind-pool risk
More predictable cash flows and yield
Structural seniority or diversified fee-based income
Alignment with long-term industry fundamentals
As private markets continue to evolve, allocators are no longer just asking where to invest, but how to position across the ecosystem. GP stakes and portfolio finance reflect that shift — from pure asset exposure toward ownership of the platforms, financing, and infrastructure that underpin the alternatives industry itself.
