Private credit is increasingly popular in Italy as leverage for diversification but the trajectory will not be easy
The retail revolution will channel above 50% of flows in private markets by 2027. Persistent geopolitical uncertainty that could further increase demand, driving investors to private markets for reducing portfolios volatility, said The New Private Markets Advantage report of NYSE-listed State Street Corporation which surveyed 500 traditional and alternative asset manager In North America, Europe, the Middle East and Asia-Pacific. The report say that the majority of respondents (56%) believes that within the next two years at least half of the flows to private markets will come from vehicles semi-liquid, retail-style structured and aimed at individual investors (press release).
Denis Dollaku, State Street’s Italy country head, said: “The results of the report reflect a greater awareness among Italian investors toward the strategic role of private markets within a well-diversified portfolio. The shift toward products dedicated to the retail segment and semi-liquid vehicles is less pronounced in Italy than in other countries, but we still observe an openness in this regard, with 30% of Italian respondents predicting that half of their fundraising will come from this type of channel in the future. Then the paradigm shift from quantity to quality emerges strongly. Private credit is increasingly popular lever for diversification in Italian strategies. In parallel, we are seeing a reallocation of capital toward developed markets, with a specific focus on Europe: 93% of surveyed Italian investors consider the region as a key market for investment opportunities. Supporting these dynamics is the adoption of generative artificial intelligence, which can improve operational efficiency, transparency and data quality, is emerging as a key accelerator for access to private markets.”
Product innovation in the semi-liquid fund segment is the main driver of the retail revolution, with 44% of respondents identifying it as the most effective lever to democratize access to private markets. Recent examples include the launch of pioneering funds such as private asset ETFs and regulatory innovations, LTAF in the United Kingdom or ELTIF 2.0 in the European Union. In North America, only 37% of respondents quoted innovation as the main driver, while 44 percent cited lowering the minimum thresholds for access (assets or income) as a priority.
More than 22% of the pool considers retail vehicles as the main collection channel for private markets, up sharply from 14% last year. Growing demand from individual investors plays a key role, but declining expectations for funding from institutional investors also contributes to the trend: only 39% now expect major flows to come from traditional sources, up from 51% last year.
Donna Milrod, State Street Chief Product Officer and head of Digital Asset Solutions, said: “The democratization of private markets has been underway for years, but 2025 could mark a turning point for retail allocations. Flows through wealth management and retail fund channels could become the main source of inflows in the future. In this scenario, it is encouraging to see how innovation in fund products and structures is playing a crucial role in expanding distribution from just institutional investors to the affluent and retail segments.”
The flight to quality rooted in investment strategies, while the expected growth rate of private markets slows. This year’s results confirm what previous State Street research said: the environment of higher interest rates that began in the early 2020s led to an increased focus by investors on due diligence and risk/return assessments, which in turn led to a move away from riskier private assets and an orientation toward a smaller number of high-quality options.
LPs and GPs expect a 42%/58% split between private and public markets in their own (or their clients’) portfolios within 3-5 years. This represents a slight increase from the current allocations of 39%/61% for LPs and 38%/62% for GPs, respectively.
The 2025 data show a year-on-year shift in capital allocation plans, with a shift from emerging to developed markets. Mature countries in Europe saw a marked increase in interest, with 63% of LPs now planning to invest in the region over the next two years (up from 43% last year), while other developed markets remained largely stable. Emerging Asia-Pacific saw the sharpest decline in allocation forecasts, with only 14% of LPs planning to invest in the area (down from 25% last year), while emerging Europe fell to 18% from 21%. The Middle East and Africa also saw significant declines, although starting from an already low base.
State Street argues that this preference for developed markets and lower growth in overall allocations are a flight to quality (or flight from risk) in institutional strategies related to private markets.
Scott Carpenter, State Street Global Head of Alternatives, pointed out: “Private markets continue to follow a solid growth trajectory, although the pace of expansion as a share of portfolios moderated from the exceptional levels hit before 2024. Renewed macroeconomic uncertainty related to U.S. trade policy, coming just after the inflation shock of the pandemic years could further push institutions to be even more selective in their allocations.”
State Street report als highlights that the current geopolitical uncertainty related to international trade relations could support private markets. The more stable and less volatile returns typically associated with private market assets are a key element of their attractiveness. Almost 25% of respondents mentioned this feature as a reason for increasing allocations in private equity (22%) and infrastructure (26%), while as many as 42% expressed the same reason regarding private credit.
However, the report emphasizes that trade-related uncertainty is bound to distort the definition of quality in ways specific to the economic environment that will be realized. For example, in a survey carried on before Liberation Day, respondents from all regions and across all asset classes in private markets pointed to North America as the area with the greatest investment opportunities in the next two years. State Street report says that non-U.S. countries and blocs may take measures to increase trade volumes among themselves. Private markets investments in companies with less exposure to the United States could benefit, while American assets may be more volatile. The current frame outcasts shadows on the quality assets’ outlook.
State Street recognizes that economic turmoil complicates the development path of new retail-style private markets products. On one hand, policymakers may prioritize other economic challenges over the necessary reforms to facilitate the growth of these funds. Furthermore, if the assets underlying retail products lose value for a prolonged period, individual investors may negatively associate these funds with the broader macroeconomic environment, thereby reducing demand.
On the other hand, the State Street report says that in a period of restrictive economic conditions and tightening fiscal policy, governments may begin to view retail flows as a useful channel for financing their domestic priorities (e.g., defense). Such a shift could spur greater legislative and regulatory attention on the reforms needed to develop retail products in private markets.
AI integration is critical to the operational success of institutions in private markets. As demand for private assets increases, institutions are increasingly recognizing the value of generative artificial intelligence (Generative AI) and large language models (LLMs) to improve their operations in private markets. Whereas in last year’s survey only 58% of respondents said they recognized the usefulness of these technologies, today 83% are planning use cases to generate data analyzable from unstructured information related to private markets. As a result, an overwhelming majority of respondents (69%) anticipate increased investment in technology.
Although General Partner and Limited Partner identified a wide range of possible applications for these innovations-from business report analysis to distributions, from loan agreements to purchase/sale documentation and sustainability information-it is in performance analysis that most respondents believe the technology will be “most useful,” both at the portfolio level and for individual holdings.
About one-third of respondents (34%) agree that technology development that can provide more frequent, timely, and high-quality data is a key factor in making private markets accessible to a wider audience of individual investors, while 37% also call for governments and regulators to require private companies to provide more and higher-quality data to their investors.
Chris Rowland, State Street head of Custody, Digital and Fund Services Product, concluded: “We believe that portfolio liquidity starts with data liquidity. This year’s results show that institutions are moving from hypothesis to concrete implementation of artificial intelligence-based solutions in their operations in private markets, and those who are at the forefront of this innovation will gain a significant competitive advantage”.
