Public markets in the West are hitting record highs, share buybacks are accelerating, and IPO pipelines have become irregular. Amid this volatility, pension plans are exploring alternative growth engines, according to a report by research boutique Create-Research and European asset manager Amundi.
The study, based on a survey of 157 global pension plans, has shown that private markets and Asian emerging markets are emerging as key investment priorities over the next three years.
74% of pension plans are already invested in private markets, according to the research, while 62% have exposure to Asian emerging markets. Despite challenges such as rising interest rates and geopolitical tensions, both asset classes are seen as offering diversification, attractive returns, and alignment with mega-trends, according to the respondents.
“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 survey found that 86% of respondents expect to remain invested in private markets within three years. Investors are drawn by the search for risk-adjusted returns in a low real return environment, with private debt leading preferences (55%), particularly in areas like direct lending, real asset financing, and distressed debt.
Private equity is also favoured, with 49% citing interest in growth equity, while infrastructure (40%) is supported by policy tailwinds such as the Inflation Reduction Act in the US and the Green New Deal in Europe. According to the research, real estate (38%) is seeing renewed interest as pricing gaps between buyers and sellers narrow. Only 28% of respondents cited interest in venture capital due to perceived risks, citing perceived risks as a deterrent.
Join us on 16th January, 2PM BST (3PM CET) to discover how private markets are poised to transform wealth distribution and shape the future of investing. Register now.
The energy sector stands out within private markets, driven by the transformative effects of the ‘four Ds’—decarbonisation, decoupling, digitalisation, and demographics. Pension plans are increasingly targeting private companies aligned with these themes, which are seen as ideal vehicles for capturing long-term value creation, according to the respondents.
In Asian emerging markets, investments remain underweight despite the region accounting for 46% of global GDP. The survey found that 38% of respondents have no exposure to Asian emerging markets, and only 11% allocate more than 10%. Geopolitical tensions, rising trade frictions and market volatility were cited as the main deterrents. Yet, 76% of respondents shared that they are planning to increase investments in Asian emerging markets within three years.
Thematic investing is gaining traction in Asian emerging markets, the research found, particularly in sectors such as renewables and high-tech. Additionally, ESG-focused investments are also growing in importance, with green, social, and sustainability-linked bonds among the preferred instruments. “As the geopolitical rivalry between the US and China intensifies, and two rival trading and currency blocks consolidate, other Asian markets are becoming increasingly attractive for investors,” said Monica Defend, head of the Amundi Investment Institute. “Increased intra-regional trade and connectivity have enhanced the regional resilience, and we expect to see allocations increase in nearly every asset class.”
Asian hard currency bonds are becoming more appealing as US interest rates ease, with 48% of respondents showing interest in them, the survey showed. Local currency bonds, favoured by 45%, benefit from strong anti-inflation policies and healthier public finances across the region.
Professor Amin Rajan of Create-Research added: “Private market and Asian emerging market assets have long remained underweight in pension portfolios. Now, the winds of change are evident.”
