The Infrastructure Imperative: How Standardization Can Unlock Private Fund Markets

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.”

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.

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.

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.

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.

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.

What Public Markets Can Teach Us

We've seen this fact pattern before. Public markets weren't always the well-oiled machines they are today. In the late 1960s, surging trading volumes overwhelmed the paper-based system. Certificates got lost, trades failed to settle, chaos spread through Wall Street. The market was literally drowning in paper.

The solution wasn't for each brokerage firm to build better individual systems. It was to create shared infrastructure, The Depository Trust Company in the United States, that everyone could use. Suddenly, securities could move electronically. Settlement became reliable. The foundation was set for everything that followed.

That infrastructure didn't stifle innovation in public markets. It enabled it, unleashing access for investors in a way that was impossible before. Because when everyone isn't allocating their resources to individually build the same basic operational processes, they can focus on what actually differentiates them. Private markets need this same shift. Not because the current system has completely broken down, but because the opportunity cost of not having it is becoming enormous.

What Shared Infrastructure Actually Means

When I talk about market infrastructure, I'm talking about the boring but essential system that makes markets work. In public markets, this includes things like standardized identifiers for securities, common messaging protocols for trade instructions, and established settlement procedures.

For private markets, it could mean common data standards for fund information, standardized protocols for capital calls, and distributions and shared utilities for managing subscriptions and transfers.

The benefits go far beyond just efficiency. Shared infrastructure creates trust. When there are clear rules, transparent governance, and robust operational standards, participants’ confidence in the marketplace grows. This is especially important for private markets as they open up to broader investor bases. It also enables network effects. The more participants using shared infrastructure, the more valuable it becomes for everyone. This is how you build liquidity and grow ecosystems.

Finally and importantly, it mutualizes costs. Instead of every firm building redundant systems for the same basic functions, the industry pools resources for the non-differentiating activities. This frees up capital and talent for higher value, alpha generating activity.

The Tokenization Moment

Here's where things get interesting. The emergence of tokenization — representation of fund interests as on blockchain networks – creates a natural inflection point for the industry to coalesce around standards. Tokenization offers compelling benefits. Digital tokens can be transferred more efficiently than traditional ownership records. Fractional ownership becomes simpler to implement, potentially lowering minimum investment sizes. Smart contracts can automate compliance checks that currently require manual review. Secondary trading infrastructure could be built on a foundation of standardized digital assets rather than our current fragmented analog market.

But there’s a crucial point central to solving this problem: tokenization alone won't fix it. In fact, without proper standardization, tokenization could actually make things worse creating even more fragmented systems and isolated pools of liquidity.

The power comes from combining tokenization with shared infrastructure. If we're reimagining how fund interests are represented and transferred, we should simultaneously standardize the data and processes around those assets.

What It Will Take

Building shared infrastructure for private markets won't be easy. It requires overcoming entrenched interests, coordinating across competitors and making long-term investments that primarily benefit the ecosystem rather than individual firms.

But I believe it's possible, because I've seen it happen before. Here's what I think it will take:

• Getting everyone to the table. Fund managers, investors, distributors, service providers and regulators all need to be involved in designing solutions and incentivized to make progress. This requires moving beyond competitive instincts to recognize shared interests in market efficiency.
• Starting with the right problems. Rather than trying to standardize everything at once, we should focus on areas where standardization provides the greatest benefit with the least resistance.
• Building for flexibility. The best infrastructure provides building blocks that participants can use flexibly, not monolithic systems requiring wholesale adoption.
• Ensuring fair governance. Governance models that give all stakeholders appropriate voice and protect against abuse of market position.

The Choice Ahead

The private markets are at a crossroads. We can continue down the current path, making incremental improvements to proprietary systems, gradually expanding access, but remaining fundamentally constrained by fragmentation.

Or we can take a different path. Embrace shared infrastructure as an enabler of growth, using standardization not as a limitation but as a foundation. I won't pretend this is an easy choice. There are real costs to building it, and the benefits primarily accrue to the ecosystem rather than to early movers. That's why it typically requires either collective action or external pressure to make it happen.

Public markets only embraced shared infrastructure after a crisis forced their hand. Private markets have an opportunity to be more proactive; to build what we need before we hit a breaking point. The question isn't whether private markets will eventually adopt shared infrastructure. The question is whether today's market participants will lead that transition or be forced to follow it later.

About the Author
Article authored by Talia Klein, Managing Director and Head of Wealth Management Services, DTCC