Pension funds to increase private market allocations
Pension funds are set to increase their allocations to private markets, according to a new report from CREATE-Research and Amundi.
A survey of 157 global pension plans found that 86 per cent expect to be invested in private markets within the next three years. Private debt and private equity were highlighted as the key areas of interest.
The pension funds also plan to increase their allocations to Asian emerging markets, which are currently under-owned by the pension sector.
At present, three quarters (74 per cent) of pension plans are invested in private market assets and just under two thirds (62 per cent) are allocated to Asian emerging markets.
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“Private markets and Asian emerging markets have had to adjust to a new era with respectively steep hikes in interest rates and a new geopolitical chessboard,” said Vincent Mortier, group chief investment officer at Amundi.
“Yet, both still offer diversification, attractive returns and are well-placed to take advantage of the more predictable sources of value creation from secular mega trends. It’s encouraging to see fresh allocations to historically under-invested areas.”
The pension funds said they were attracted to private markets due to their risk-adjusted returns, the prospect of lower interest rates, more growth companies in private markets, and the fact that fast-growing companies are staying private for longer.
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55 per cent of the companies surveyed said they were keen to increase their allocations to private debt, with direct lending, real asset financing and distressed debt attracting the most attention. The most popular sectors include healthcare, real estate, renewables, carbon capture technologies and social infrastructure.
“Private market and Asian emerging market assets have long remained underweight in pension portfolios,” added Professor Amin Rajan of CREATE Research.
“Now, the winds of change are evident.”
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