Home / Analysis / Institutional investors to boost private allocations: State Street

Institutional investors to boost private allocations: State Street

Private markets could be almost on par with listed assets in institutional investor portfolios before the end of this decade, according to a new State Street study.

The third annual State Street global poll of 480 institutions on private markets allocations found the proportion of respondents holding more than half of their portfolios in the non-traditional asset class is set to rise from just over a third today to 41 per cent during the next three to five years.

“Over half of institutions (59 per cent) have already allocated 30 per cent or more to private markets, and this is expected to grow to 71 per cent by 2028,” the report says.

Eric Chng, State Street head of solutions APAC, said in a release that institutional investors in the Asia-Pacific region had allocated slightly less than global peers to private markets albeit with a similar growth path ahead.

  • “Despite the macro headwinds, APAC institutional investors still plan to increase their allocation to private markets,” Chng said. “…Currently, 47 per cent of APAC respondents are investing more than 30 per cent of their portfolios in private markets. More respondents (60 per cent) believe their private assets allocations will reach the 30 per cent level in three years’ time.”

    However, the survey reveals APAC investors are more likely to favour private debt over private equity and infrastructure compared to global counterparts.

    “Within private markets, private debt is the most appealing to Asia Pacific investors with 78 per cent planning to increase allocation to the asset class in short term,” Chng said. “We have seen high levels of dry powder and a marked slowdown in deal flows indicating valuations gaps between buyers and sellers persist. In an attempt to seek alpha in a crowded marketplace, investors have increasingly explore fresh market niches.”

    By contrast, a respective 64 and 63 per cent of APAC investors plan to increase exposure to private equity and infrastructure during the next couple of years versus 67 and 71 per cent for the equivalent global statistic.

    But the survey highlights ongoing economic headwinds that could disrupt the private asset party, especially lingering concerns about the path of inflation.

    Almost two-thirds of respondents said inflation had probably peaked in their own markets, though most expect the rate to remain higher than central bank projections over the coming two years.

    “Most respondents (58 per cent) are finding that macro challenges are making fundraising difficult, which is leading to delays of three months to a year or more,” the State Street release says. “In response, institutions are increasing their diversification, investment in risk management, and reducing risk exposure with 43 per cent exploring fresh market niches, 38% enhancing risk management processes, and 34 per cent reducing risk to protect against downside.”

    Furthermore, about 80 per cent of those surveyed wanted to see better data on private markets that could also be included on a single platform with more traditional assets. Close to 60 per cent said artificial intelligence had the potential to improve investment operations for private assets while 43 per cent expected machine-learning to help.

    Private markets would remain a mostly institutional strategy, according to just over half of respondents, despite a similar proportion also tipping strong retail demand for the asset class.

    “The great rotation from public to private markets is not slowing down, with investors set to allocate more to private assets than ever before,” said Donna Milrod, State Street chief product officer.

    “This increasingly sophisticated private market universe means the current economic environment, coupled with investors’ desire for wider, more diverse avenues of capital, is making private markets attractive now and for the foreseeable future.”

    The study, carried out by CoreData, quizzed 480 respondents drawn from “traditional asset managers, private market managers, insurance companies and asset owners” across North America, Latin America, Europe and APAC over September to November last year.

    David Chaplin

    David Chaplin is a reputed financial services journalist and publisher of Investment News NZ.

    Print Article

    Where family offices are putting their pots of gold to work

    The assets family offices invest in haven’t changed much but the ways they’re investing in them have, according to BNY Mellon Wealth. Meanwhile, cryptocurrencies are seeing more interest as a new generation takes the reins.

    Staff Writer | 21st Jun 2024 | More
    Machines won’t be the masters of the universe: Ruffer

    Artificial intelligence might be better at gathering and storing knowledge, but incorporating wisdom into an investment approach (or abandoning it altogether) remains the exclusive domain of humans – for now.

    Staff Writer | 19th Jun 2024 | More
    Why super’s return machine will need to shift gears

    In the accumulation phase the super fund CIO and investment team is at the wheel. But as more and more members start retiring they’ll have to share the driving.

    Lachlan Maddock | 14th Jun 2024 | More