Greater geopolitical risks and continued volatility in public markets are major factors driving institutional investors to increase allocation to private markets over the next two years, according to a study from PGIM.
Over three-quarters of respondents said they expect their risk appetite to increase over the same time period.
Asset manager PGIM surveyed 250 decision makers in Europe, Middle East & Africa representing $10 trillion of assets under management. The strongest support was for private credit, real estate debt and equity.
Sustainable equity in order to meet returns, along with income generation and risk management portfolio objectives, also rated high.
Developed Asia Pacific and emerging Europe were uncovered as top destinations for capital, said PGIM, whilst China and Latin America showed declining investor appetite.
Almost half of respondents (49%) expect to retain their current allocation to private credit, whilst 44% look to increase exposure to the asset class.
PGIM argued that while the European private credit market is less developed than the US, the region’s growth prospects look set to close this gap, providing opportunities for managers with local expertise.
And despite a challenging period for the real estate market, a recent reset in valuations is leaving investors optimistic on the asset class, with investors seeking risk but less so to the extent of pursuing opportunistic strategies.
Currently, private markets make up approximately 25% of survey respondent portfolios. Within this, real estate equity (18%), private credit (11%), private equity (10%) and real estate debt (10%) are the most widely held asset classes.
There were multiple reasons attributed to the likely increase in private alternative allocations, but global tensions and election uncertainties continue to be at the forefront of investor considerations – with 58% of survey respondents expecting geopolitical risks to increase.
In addition, 36% of survey respondents expect volatility in public markets to rise, while 42% expect volatility to remain at current elevated levels. However, while volatility in public markets is expected to move higher, almost half of the respondents (47%) expect correlations between public and private markets to decline – further supporting the case for increased portfolio weightings in alternative assets.
Insurers to increase exposure to private debt
