Indicating a continued shift from public to private assets within investment portfolios, a survey has found that over one-third of institutions have allocated over 50% of their portfolio to private markets, projected to rise to 41% in the next three to five years.
According to the survey by financial service provider State Street Corporation, additionally, 59% have allocated 30% or more to private markets, expected to reach 71% by 2028.
Among private market asset classes, infrastructure and private debt emerge as the top choices for investors, with 71% anticipating increased allocations to each over the next one to two years.
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Furthermore, private equity is poised for resurgence, with 73% of investors planning to ramp up allocations to this asset class in the longer term.
However, navigating macroeconomic challenges remains a concern for institutions, with fundraising hurdles and delays of three months to a year or more reported by a significant proportion of respondents. In response, institutions are diversifying their portfolios, bolstering risk management processes, and exploring new market niches to mitigate risks.
A centralised platform for both public and private asset data was identified as a critical need by nearly 80% of investors.
However, the recent advancements in AI have the potential to improve private market operations significantly. Nearly half of respondents (43%) globally believe that machine learning has the potential to enhance private market operations, while more than half (58%) believe that generative AI will enhance operations.
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Institutions are skeptical about retail investment growth in private markets but view legislative changes as potential drivers. Over half (54%) expressed doubts over the suitability of current investment products for retail investors, yet approximately half (49%) perceive strong demand for retail access to private markets.
“Overall, while demand for private market assets continues to grow, investors are also experiencing a tightening supply of quality deals and express that borrowing costs can be an issue for them,” said Scott Carpenter, global head of private markets & credit at State Street. “Central bank decisions on rates and the state of inflation will heavily influence opportunities and investing behaviours over the next couple of years.”
