Northern Trust Asset Management expects private investments may provide more attractive returns relative to the public equity and bond markets over the next decade, as the firm assesses its approach to the sector.Northern Trust Asset Management’s Capital Market Assumptions 2025 Edition expects moderate global equity performance, improving high yield bond returns and strength in private credit over the next 10 years. Three trends likely to affect markets and the global economy over the next 10 years are AI-enabled productivity, navigating the energy transition, and globalization, which the asset manager described as “bent, not broken.”Anwiti Bahugana, NTAMAnwiti Bahuguna, chief investment officer of global asset allocation at Northern Trust Asset Management, said in a statement: “Private investments may prove to offer even more attractive returns relative to the public equity and bond markets. Declining interest rates will drive demand for private credit to boost M&A activity, while AI and other technology advances will push low double-digit growth in private equity and venture capital.”Over the coming decade, Northern Trust forecasts the following long-term average annualized return expectations:alternatives: 8.4% annualized return for private credit and 10.1% annualized return for private equity, supported by AI opportunities and potentially more mergers and acquisitions;
real assets: 6.6% annualized return for global listed infrastructure;
equities: 7.5% annualized return for U.S. equities and 5.8% annualized return for developed markets ex-U.S. equities;
fixed income: 4.7% annualized return for U.S. investment grade bonds and 5.6% annualized return for U.S. high yield bonds.
The forecast 8.4% annualized return for private credit, is a 2.5% premium over the high yield bond forecast, which Northern Trust Asset Management said represents a combination of average active manager alpha, an illiquidity premium and the positive growth outlook for the asset class.Source: NTAMThe private credit return assumption increased from the 2024 forecast which the asset manager said was mostly because of the removal of the 2% “haircut” on returns. The haircut had been added to reflect private credit’s vulnerability to rising interest rates, but Northern Trust Asset Management said this is no longer expected in the next 10 years.“Private credit likely will continue to capture market share in the lower middle market as traditional bank lenders’ appetite for smaller businesses wane,” said the report.The asset manager also expects that falling interest rates will provide a tailwind for M&A, especially for private equity sponsors that continue to sit on record levels of dry powder, so private credit deployment will increase.Shifts in asset managementJohn McCareins, Northern Trust Asset ManagementJohn McCareins, head of Northern Trust Asset Management, International said at a media briefing on 5 February that the firm received most inbound
