Lack of knowledge holding back investors from private assets
Growing numbers of investors are considering private assets to protect their portfolio against volatility, but two thirds still have limited knowledge of the asset class.
Schroders’ Global Investor Study 2023 found that individuals are reconsidering their investment strategies amid inflation and geopolitical uncertainty.
41 per cent of investors surveyed said that private assets have become more attractive over the last six months, compared with 44 per cent who found them the same and 14 per cent who said they had become less attractive over the period.
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The investment firm surveyed over 23,000 people who invest from 33 locations globally.
Respondents then rated their investment knowledge as ‘expert’ or ‘beginner’.
In recent years, regulators and asset managers have been working on democratising private assets, with the launch of structures such as Long-Term Asset Funds in the UK and European Long-term Investment Funds in the EU.
However, Schroders’ survey shows that there is still some way to go in educating individual investors about the benefits of the asset class.
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65 per cent of respondents said that they saw a lack of transparency in private assets as a barrier to investing, while 64 per cent said they had less experience with, or knowledge of, the asset class.
Illiquidity was cited as an off-putting factor by 63 per cent of investors, followed by costs (55 per cent) and minimum investment size (37 per cent).
Nevertheless, on average, investors said they would consider allocating 16.4 per cent of their funds into private assets. For more ‘expert’ investors, this rose to 23.1 per cent.
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When questioned about their top choice of private asset if they could invest, private equity was the most popular answer, cited by 30 per cent of investors.
Real estate was the second most popular asset class, while infrastructure and renewable energy ranked third.
Just three per cent cited private debt.
Overall, private assets are viewed as an important diversification tool and a way to boost portfolio performance by more than half of the respondents (51 per cent and 56 per cent respectively).
And 40 per cent of investors said they were attracted by the asset class’s sustainability credentials.
“A few years ago, a typical private assets investor would have been what asset managers call ‘institutional’,” said Nils Rode, Schroders Capital’s chief investment officer.
“These are big investors like defined benefit pension schemes, or large endowment funds. As this year’s [survey] shows, the picture is likely to change a lot in the next few years.
“The range of options to access private markets is widening, and smaller investors are taking note. It’s a challenging time to be interpreting markets, and investors are looking for every available tool to achieve their desired outcomes. Private assets represent an incredibly varied set of opportunities, and a huge number of return drivers.
“We believe the widening of options for smaller investors is a very positive development. We also believe that the case for including a private asset allocation – where appropriate – is arguably stronger than ever.”