The private markets industry has achieved remarkable growth, reaching $24.4 trillion in assets by the end of 2023. Yet this success masks a fundamental problem: the complete absence of standardization is costing the industry billions in lost efficiency and blocking millions of investors from participating in an entire asset class. In Part 1 of this two-part series, Talia Klein, Managing Director and Head of Wealth & Investment Solutions, DTCC, explores the scale of the problem and why the industry has struggled to solve it on its own.
Key Takeaways
- Private markets are huge but inefficient, costing the industry billions annually because processes aren’t standardized.
- Institutions use their own systems, creating fragmented “standards” that make the industry slow and hard to scale.
- Shared infrastructure could fix this, streamlining tasks like onboarding and reporting while still allowing flexibility.
The private markets industry is losing value through a problem so basic it's embarrassing: the complete absence of standardization. Fund managers, service providers, distributors, and investors are all paying the price in wasted time, ballooning costs and missed opportunities. Yet most haven't calculated just how steep that price really is.
The question isn't whether standardization exists in private markets. It does, in pockets which is precisely the problem. Every service provider, platform and large institution has standardized internally, creating dozens of competing 'standards' that guarantee the industry as a whole remains unstandardized. The real question is whether the industry can move beyond these isolated efforts to embrace a shared market infrastructure that serves all. But the stakes go deeper. Importantly, the question is whether such an infrastructure can position private funds markets for the next wave of innovation in digital assets and tokenization, focusing on real-world business solutions rather than creating yet another “solution without a problem.”
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The $24 Trillion Question
Investment in private market funds have exploded over the past two decades, reaching $24.4 trillion in assets by the end of 2023, according to Ernst & Young. That is an extraordinary success story. But this massive market still runs on inefficient and costly processes estimated at 20-30% of operational expenditure lost annually to rework, miscommunication, fragmented systems, and manual processes, according to research by Crebos supported by findings from McKinsey, Bain & Company, and PwC. On the ground, this translates to advisors spending more than 20 hours per month on manual work that automation could eliminate, with McKinsey research showing that better technology adoption could unlock cost savings of 4-7% and productivity increases of 10-15%.
Think about what happens when you invest in a mutual fund. You click a button, the money moves, you get confirmation. It's seamless because decades ago, the industry built shared systems that fund companies, brokers, and custodians all use. Now contrast that with investing in a private fund—an experience most retail investors have never had because these investments have historically been restricted to institutions and wealthy individuals. Instead of an automated process obfuscated from the end investor, you're required to manage subscription documents, capital call notices, K-1 tax forms, and months-long onboarding processes. Each fund manager has their own paperwork, their own systems, their own requirements. There's no button to click.
“The real question is whether the industry can move beyond these isolated efforts to embrace a shared market infrastructure that serves all.”
This lack of accessibility, and the operational complexity behind it, is about to become a critical issue. Retail allocations to alternatives currently sit at just 3% compared to 20% for institutions. If that gap closes even partially, moving from 3% to 7%, it could mean an incremental $10 trillion in global allocations. That would bring significantly more complexity: exponentially higher transaction volumes, smaller average investment sizes, and millions of first-time alternative investors navigating an investment process that wasn't built for them.
This isn't just inconvenient. It's a barrier that's locking millions of people out of an entire asset class. Research from AltHQ found that private markets cost five to 10 times more to operate than public markets. That's not a rounding error. That's a fundamental inefficiency eroding returns and limiting who can participate.
WIS Private Market Solutions: The Right Infrastructure for Alternative Investment Options
In contrast, public markets are structured, scaled, and secure. Systems are standardized and work smoothly with clients' systems, virtually eliminating paperwork and achieving straight-through processing rates above 80%, which reduces processing costs from over $12 per transaction to under $3. Services like Fund/SERV, DTCC’s platform that processes over 100 million mutual fund transactions annually, represent the standard way to buy, sell or transfer funds in the U.S., connecting investors and fund managers efficiently.
Why We're Still Here
You might wonder why an industry as innovative as private markets hasn't solved this already. The answer is complicated, but it boils down to a classic coordination problem.
“This lack of accessibility, and the operational complexity behind it, is about to become a critical issue.”
Private funds are genuinely complex. Each one has unique terms, different fee structures, and specific liquidity provisions. That complexity isn't arbitrary. It allows funds to tailor their structure to their investment strategy and investor needs. So, there's been a reasonable assumption that standardization would somehow limit that flexibility.
The industry has recognized these problems, but the response has been fragmented and counterproductive. Large managers and banks invested in their own proprietary systems, backed specific fintechs and struck exclusive partnerships each solving standardization for themselves while deepening fragmentation for everyone else.
Today there are four to five competing fund marketplaces, each with different integration patterns and workflows, each championed by key market participants deeply aligned to just one platform's success. The incentives explain why: if you're a large, established fund manager who's already built systems that work for you, why invest in shared infrastructure that will primarily benefit your competitors and make it easier for new entrants to challenge your position? It's a classic first-mover problem. Those who could lead standardization have the least incentive to do so. But as the market confronts the reality of bringing alternatives to retail scale, the industry is starting to see that shared infrastructure isn't optional—it's essential.
What's needed is a solution, something for private markets like we have for public markets: a neutral infrastructure that everyone has the opportunity to benefit from. The market has grown too large and the inefficiencies have become too costly to continue with fragmented approaches. But more importantly, I think we've been asking the wrong question about how to approach this problem.
The Real Question
The question isn't whether we should standardize. It's what we should standardize.
“The industry has recognized these problems, but the response has been fragmented and counterproductive."
Not everything about a private fund, for example, needs to be bespoke. A capital call follows a predictable pattern regardless of investment strategy. Investor onboarding requires similar information whether you're investing in venture capital or private credit. Fund reporting, while detailed, draws on similar underlying data across managers.
What if we could standardize these operational processes while preserving flexibility on the things that actually matter—investment strategy, fund terms, fee structures? This is what shared market infrastructure does. It doesn't constrain innovation; it creates a stable foundation that accelerates innovation and makes it easier.