Private equity and emerging markets equities topped all asset classes in Northern Trust's most recent five-year outlook, published Monday.
The money manager is forecasting an 8.6% annualized return for private equity (based on a blended composite of 75% buyout funds and 25% venture capital funds).
Despite the fact that purchase price valuations "have trended upward recently," the firm expects a 2.5% return premium to global equity. The relative outperformance in private equity reflects both an illiquidity premium and alpha (from security selection and marketing timing).
In terms of public equities, the firm believes that developed market returns will come down “as valuations march upward in the face of an expected slow-growth environment over the next five years.” However, emerging markets will offer a modest equity premium (reflected in their 7.8% forecast vs. 6.1% for developed economies).