Institutional investors are expanding beyond public markets into private markets and other emerging, illiquid assets. Investment in private debt and cryptocurrency are two areas that will make headlines in 2025, as investors look to gain exposure to these assets and asset managers seek to meet that demand by delivering new innovative products.
Cutter Research member firms invest in a variety of liquid and illiquid assets, including some not considered mainstream. These assets introduce complexity and unique challenges. And because of these challenges, many asset managers and asset owners will struggle if they lack the right tools and processes.
Public-Private Debt Funds
Private debt has grown significantly in the past decade. As one of the fastest-growing private asset classes, it continues to attract institutional investors, including many Cutter Research member firms. In fact, in our 2023 research on Alternative Investments, we found that more than half of our member firms intended to increase their allocation to private debt.
But believe it or not, private debt investment is now old news. What’s new today is the emergence of public-private debt funds that cater to a broader investor base, and these fund structures are becoming increasingly complicated. While many firms gain exposure to private debt through funds or investments managed separately from their public market fixed income investments, more opportunities exist today for investors to gain exposure to both public and private debt through a single fund.
In 2024, we saw some notable partnerships between traditional asset managers and private market investment managers looking to launch not only new semi-liquid and interval funds, but even an actively managed public-private credit ETF. This would mark the first ETF to directly invest in private credit instruments, which would lead to some unique operational and liquidity challenges.
While these hybrid fund structures in general have raised several questions and concerns, we will see more public-private fund solutions in 2025, with more creative ─ and complicated ─ private market investment solutions to follow.
Cryptocurrency
Although Cutter Research members have been focused on private debt for years, cryptocurrency is arguably more in the nascent stages. Over the years, cryptocurrency has attracted its share of critics, with many investment managers remaining on the sidelines for a variety of reasons.
But cryptocurrency drew significant media attention in 2024 as Bitcoin prices soared. New crypto-linked products were introduced last year, allowing investors to gain exposure to the price movement of cryptocurrencies like Bitcoin and Ethereum. While skepticism certainly persists, more investment managers see an opportunity with cryptocurrency.
Among both asset managers and asset owners, we expect investment in cryptocurrency to continue to increase in the coming year. In 2024, we saw a large Australian financial services firm make headlines after investing in Bitcoin futures as part of its dynamic asset allocation program. Several pension funds in the United Kingdom and United States also gained exposure to Bitcoin and Ethereum through ETFs, while more U.S. asset managers continued to bring new Bitcoin and Ethereum ETFs to market.
And while some asset managers see little demand for crypto-linked ETFs outside of Bitcoin and Ethereum, we predict that other asset managers will introduce new crypto-linked products that are tied to other altcoins in the future.
In short, cryptocurrency has arrived, and mainstream investment will continue.
What’s Next
To effectively manage these investments, firms should not only consider the technology and architecture needed to support more complex instruments and investment strategies but also look for better ways to organize their support staff. Some firms will reconsider organizational silos and centralize their support staff to handle a broader universe of instruments.
As firms increase their investment in these instruments, we expect more of them will move from a specialized to centralized support model in operations and IT as their process matures and they develop more expertise. This will allow firms to reallocate resources where needed more easily as allocations shift. For asset managers, it will also enable them to scale up or down to meet market demand.
In Cutter’s 2024 Alternative Investments Benchmarking study, we found that while most firms use a separate operations team for their private market investments, 42% of them do not. This indicates that some firms have a centralized support model, where staff are cross-trained to handle multiple asset types, both public and private.
In 2025, we expect more Cutter Research firms to reconsider what’s possible, and the unconventional will become conventional.
