Principal investors play a critical role in the investment world. Evolving expectations, a shifting interest rate environment, and the need to manage increasingly large asset bases for both performance and impact are transforming how and where these investors allocate capital. As principal investors assume a more prominent role in the investment landscape and in society more broadly, their relationships with the general partners (GPs) that manage much of their capital are also being reshaped. To succeed in this new environment, principal investors and GPs must recognize the influence of current market trends and adapt to the shifting dynamics that drive investment strategies across asset classes.

BCG’s Global Principal Investors Report 2024 delves into these trends and underlying forces and their implications. We focus on a subset of principal investors: sovereign wealth funds and public pension funds. These funds represent the largest base of limited partners and have a significant influence on the industry's operating models.

The report explores the evolving size and scope of the principal investor universe, the contours of overarching megatrends, and the shifting relationship between principal investors and GPs. Following this analysis, we identify a set of imperatives for principal investors. We conclude by discussing the key implications for GPs and asset managers—factors that we believe will determine which players capture a disproportionate share of principal investor assets and which do not.

Within the private capital industry, principal investors serve as the primary source of capital for external managers. No longer simply passive capital providers, many are adopting active models—co-investments, deal leadership, and strategic partnerships—as they seek greater control and try to align investments with both financial returns and long-term strategic objectives.

The evolving relationship between principal investors and GPs will shape the future of private markets. For principal investors, the path forward depends on their strategic vision and willingness to build internal capabilities or deepen partnerships with GPs and external advisors. GPs, in turn, must adapt by offering principal investors more customized investment structures, aligning their incentives with investors’ long-term strategic goals, finding distinctive ways to generate alpha, and demonstrating leadership on environmental, social, and governance topics. The ability of both principal investors and GPs to collaborate effectively will determine their success.