Institutions to boost private market exposure
More than half of institutional investors expect to increase their private market allocations over the next two years, in anticipation of more growth in the sector.
According to a new study by Aviva Investors, 56 per cent of institutional investors already allocate ten per cent or more of their portfolios to private markets.
Furthermore, almost three quarters (73 per cent) of global institutional investors believe that private market investments will outperform public markets over the next five years.
Aviva Investors’ seventh annual Private Markets Study surveyed 500 institutional investors from around the world, representing combined assets of $4.3tn (£3.4tn)
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70 per cent of these investors said that their main reason they allocate to private markets is for diversification. 47 per cent said they were attracted to the illiquidity premiums offered by the sector.
“The illiquidity premium is emerging as a driving force behind the trend towards private markets, and investors are recognising it as a reason to increase their allocations to these strategies,” said David Hedalen, head of private markets research at Aviva Investors.
“Investors have had to adapt to changing market conditions over the last 12 months. Despite this, allocations to private markets have continued to trend upwards. It suggests a recognition of these asset classes to deliver across various stages of the investment cycle and offer diversification from public markets.”
The study found that globally, private market assets now account for 11.5 per cent of institutional investor portfolios, up from 10.5 per cent last year.
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Three quarters of investors globally now consider sustainability to be either a critical factor or one of several factors in their investment decisions, up from two-thirds in 2023. Net zero has also continued to be a focus for global institutional investors, with 65 per cent saying that their organisation has a commitment in place.
Elsewhere in the study, 76 per cent of investors said that proven investment performance is the most important factor when selecting an asset manager. 68 per cent prioritised competitive fees, and 65 per cent looked for proven expertise in thematic/sectoral strategies.
Globally, asset valuations and high transaction costs (both 46 per cent) were considered the biggest barriers to investing or increasing their investment in private markets.
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