As one of the highest-returning asset classes in past years, the market stands at about $10 trillion, representing about 9% of global third-party AUM, according to the brokerage.
Morgan Stanley listed five key factors powering its rise - democratization of the markets, growth in private credit, increased infrastructure investments, rise of alternative liquidity options and focus on ESG investments.
"We see private market firms increasingly introducing products and strategies across the risk/return/liquidity spectrum, with wrappers and vehicles that cater to different investors," the brokerage said.
These factors could help the industry to tap into a total addressable market worth over $100 trillion, Morgan Stanley added.
"An expanded sandbox of private market capabilities makes 'alternatives' less alternative, instead opening a path for private markets as a substitute for traditional fixed income and equity," it said.
Morgan Stanley, however, acknowledged near-term challenges on a weak macro backdrop and recession concerns.
"It's less clear whether in a meaningfully higher interest rate environment, investors will continue to sacrifice liquidity for excess return," the brokerage said.
"Our growth thesis is predicated on continued, relative private-market outperformance relative to public markets, and asset allocation shifts in favor of private markets."
Morgan Stanley prefers asset managers rated "over-weight" such as Blackstone, P10 and Bridge Investment Group, citing diverse earnings streams and a high proportion of fee-related earnings.
It also highlighted "equal-weight" players like Ares and Goldman Sachs for being "attractively" positioned with exposure to retail, private credit and ESG.
(Reporting by Siddarth S in Bengaluru; Editing by Anil D'Silva)
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