Mercer's CIO explains why manager selection is one of the most critical decisions in private markets, amid a push to private credit and infrastructure
Reflecting on how compliance and regulatory demands have grown dramatically over the past two decades, and as new managers break away from large institutions, Christine Tessier believes the focus is often on deal-making skills, but “many people underestimate the operational risk side of it.”
She argued that strong due diligence often feels invisible until something goes wrong. In public markets, even a serious loss still allows investors to sell and exit whereas in private markets, exiting a bad investment is far harder, despite growth in the secondary market.
She stressed that operational risks and not fraud, are the most common cause of private market failures. Many investors lack the resources for thorough operational due diligence, which includes scrutinizing fund structures, monitoring managers, and managing less-automated information flows. And in an environment where geopolitical risks are higher, inflation remains sticky, and monetary policy is uncertain, investors are looking for assets that can absorb shocks differently than public markets. Therein lies the appeal for infrastructure and private credit.
“There is a feeling of vulnerability to various risks that have increased versus a year ago,” said Tessier, Mercer’s chief investment officer. “Geopolitical risk is obviously higher. Monitoring of inflation and its impacts on people is another and that, of course, influences a whole host of factors, such as monetary tightening and so forth.”
That’s why she sees manager selection as one of the most critical decisions in private markets. The gap between a top-tier manager and a weak one, she said, can ultimately be “really defining” for portfolio outcomes.
Private credit and infrastructure are favoured among investors
Tessier's comments come as Mercer's 2025 Large Asset Owner Barometer found institutional investors are leaning harder than ever before into private credit and infrastructure to navigate today’s market volatility and global uncertainty.
The firm’s report cited that 47 per cent of large asset owners globally plan to boost allocations to private debt or credit, with 70 per cent of those managing over $20B targeting significant increases. Meanwhile, Mercer sees a “a significant appetite” among large asset owners for outsourcing investment management.
The appeal is partly around control and risk management, noted Tessier. She explained that investors are able to select a good private credit manager because “there’s a higher degree of control on loans in the event of a credit event,” acknowledging that private lenders can renegotiate terms, something not typically possible in the public bond market.
Despite institutional investors being long-term planners, Tessier believes short-term market moves can carry useful signals, even for long-term investors, because “the new information is there to inform how the longer term will evolve.”
The challenge, she added, is distinguishing between what’s mere noise and what genuinely changes the future, a skill she described as both “an art” and a discipline.
Beyond credit, she argues private markets offer concentrated exposure to growth themes such as AI, cloud computing, and ESG in ways that public markets can’t match. Additionally, private assets, such as private debt, are valued much less often than public market securities, sometimes only monthly, quarterly, or even annually. This means they avoid the constant price swings seen in public markets, where bond values can shift sharply within a single day based on news or market sentiment.
Although factors like interest rates, the yield curve, and economic conditions still shape their valuations, private assets typically adjust more slowly.
This lag creates what Tessier described as “accounting smoothing,” helping portfolios appear more stable by sidestepping the daily volatility that public markets experience.
“When you build portfolios, you’re trying to represent true economic value and we recognize that’s a bit of an accounting benefit, if you will. But nonetheless, it does help stabilize your monthly data, if you’re presenting to key stakeholders,” she noted.
Still, Tessier emphasized that for large institutional investors, moving into private markets isn’t about chasing a fad, but rather proper risk management.
“I would hesitate to position it as a preference and encourage it more as an evolution,” she said, describing institutional investors “as constantly seeking how to best utilize their capital, to maximize their objectives over long periods of time."
Historically, many portfolios followed the traditional 60/40 stock-bond split, but with more investment products now available, institutions are broadening their toolkits, noted Tessier. Because pensions, insurers, and endowments often don’t need immediate access to their capital, they can lock up funds for 5, 10, or even 15 years, making them better suited to the illiquidity of private markets.
Tessier stressed that in these investments, they’re not just bartering the amount of money but that the true asset is also the time.
In a high-risk economic environment, companies are focused on efficiency. For investors, Tessier believes that often means looking to private markets for the extra yield that comes with the illiquidity premium, provided they can afford to tie up capital.
However, as more investors explore private markets, they quickly encounter the complexity. Public securities go through rigorous, standardized processes and are subject to strict regulatory oversight.
Contrastingly, private markets are “substantially less regulated, and so a lot of that burden shifts to the investor,” Tessier noted. Notably, mid-sized asset owners often access them through funds, which come with lengthy offering documents, complex subscription agreements, and structural nuances that require specialized expertise to navigate.
“While a lot of the asset thematics are important, I recommend that clients really be thoughtful about how they think about liquidity and to engage in thoughtful liquidity analysis as they explore these very helpful avenues that require different analysis frameworks,” said Tessier. “Liquidity is a rare gift, and that's the reason it receives the premium that it does.”
