The vast majority of investors plan to increase their private assets exposures over the next 12 months, amid a growing focus on the benefits of diversification, according to Schroders institutional investor study.
The annual study, which surveys 750 investors with $26.8 trillion in assets across 26 locations, found that 90% of investors were aiming to increase their allocations in one or more private asset classes over the coming year.
The study revealed the growing importance of private assets, with 47% of investors stating they will continue to diversify into alternatives and private markets and reduce their listed exposures, almost double the proportion of investors polled last year. Investors cited this decision was driven by the economic and financial impact of the pandemic.
Over a third of investors also said that the impact of the pandemic had increased the importance of ESG considerations, with 54% citing that ESG strategies which have a “benefit all stakeholders” principle at the heart of their investment process is the most appealing.
Diversification among portfolios was also a major theme as 80% of investors said the need to diversify was driving their private assets allocations, up from 78% a year ago and the 73% polled in 2019.
Georg Wunderlin, global head of private assets at Schroders Capital said it is clear that institutional investors value real diversification highly, but the variety and consistency in private assets may be underestimated.
“The opportunity is not only to diversify across publicly listed and private investments, but also to diversify within private assets. By combining different private asset classes investors can get exposure to very different return, risk and liquidity profiles and also make use of different underlying macroeconomic and industry-specific return drivers,” he said.
The most important factors cited by investors when it came to selecting private asset managers was track record, team stability, as well as the quality and transparency of reporting.
Investors in Latin America placed a far greater emphasis on the ability to meet local requirements compared with their global peers.
Maria Teresa Zappia, chief impact and blended finance officer and deputy CEO of BlueOrchard, said that the Covid-19 pandemic showed the importance of providing finance in real time to core sectors of the economy.
“It has also shown how vital the combination of public and private resources is at times of crisis, when financing needs are overwhelming and the funding from the private sector alone would not suffice.”
Private debt in emerging and frontier markets also proved crucial said Zappia.
Globally private equity was the stand-out asset class for future allocations, with 36% of investors expecting to build their allocations, followed by infrastructure equity (32%) and impact investing (29%).
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