Private market asset classes are no longer alternatives to most asset owners, but building blocks used to construct their investment strategies, Delaney said.
For most investors, it's been an evolution, with investors' real estate investments, for example, becoming a broader real assets strategy, he said. High-yield debt and loans evolved into private credit, Delaney added.
"The combination of traditional and alternative exposures has become the norm of what we see today," he said.
Indeed, the private capital money management industry is growing at a fast clip, without any signs that it will slow down anytime soon.
Between 2017 and 2022, private market firms' combined assets under management grew at an annual rate of close to 20%, McKinsey & Co. reported. Private capital total assets AUM is expected to double to $23.3 trillion by the end of 2027 from $11.7 trillion as of June 30, 2022, a Preqin analysis shows. That's up from roughly $5 trillion in 2017.
Over the next half century, private market executives expect that investments in the asset classes will have a far-reaching impact on the economy and on society.
"Global proliferation of the asset class and adoption by retail investors will grow private markets to $150 trillion" in 50 years, said Jeff Diehl, managing partner and head of investments at alternative investments firm Adams Street Partners.
Diehl said he also expects to see more substantial partnerships between governments, private markets money managers and private companies that will drive economic growth by creating jobs and stimulating investment.
"I also believe that the innovation unleashed by private markets will cure cancer and paralysis, make space travel ubiquitous, nearly complete the transition to solar power and successfully meld human brains with machine intelligence," Diehl said.
Some industry insiders wouldn't go quite that far.
Private market asset classes are "certainly essential for institutional investors that want to seek out the best risk-adjusted returns given how much of the opportunity set has shifted to private markets," said Armen Panossian, head of performing credit and incoming co-CEO of Oaktree Capital Management.
"Importantly, private markets enable capital to be provided by long-term oriented investors to endeavors that may not be well suited to public markets while also, in many cases, increasing systemic resilience by providing continued access to credit and capital, the lifeblood of the economy, during times of disruption when other financing channels may not be available," Panossian added.
North America private capital is expected to produce an 11.8% internal rate of return each year through 2027, according to Preqin. Venture capital is expected to offer the best performance during the period with an annual 13.8% from 2021 to 2027. Private equity is anticipated to return 13.5% over the same period, which is 2.7 percentage points below its annual average 16.2% IRR from 2015 to 2021, Preqin reported.
Supporting businesses that could benefit society is easier to do in the private markets, said Willis Towers Watson's Delaney.
In 2022, the U.S. private equity sector alone included approximately 5,000 private equity firms and 18,000 PE-backed companies, according to a report for the American Investment Council, a private equity money management industry trade group.
Many of the companies involved in artificial intelligence or medical advances are private companies and a big portion of those are backed by private equity, venture capital and/or private debt managers, Delaney said.
Healthcare is already a big theme across private capital asset classes. Since 2012, private equity firms have backed 966 U.S. life sciences companies and 924 medical devices and supplies companies, investing about $280 billion, according to a March 2022 American Investment Council report.
"The private investment space is ripe for making improvements in society," as well as generating returns, he said.
The private market is also at the forefront of innovations in technology and life sciences among other areas, industry professionals say.
"As we all experienced firsthand during the pandemic, software has fundamentally changed the way the world does business," accelerating a digital transformation at companies of all types and sizes, said Michael Fosnaugh, senior managing director, co-head of flagship fund at private equity firm Vista Equity Partners. "Many of these advances were fueled by capital and operational expertise provided by the private markets."
He does not see that dynamic changing anytime soon.
"According to our own data, approximately 97% of enterprise software companies — and therefore investment opportunities — are in private markets," he said.