Institutional investors remain committed to private markets.
STAYING THE COURSE
“The increasing presence of large-scale investors such as pension funds and sovereign wealth funds in private markets makes them an ideal bellwether for the asset class. So what are these professional investors thinking today?”
Private markets have come a long way in institutional portfolios - those belonging to such as pension funds or insurance funds - from just a couple of decades ago. Back then, typical pension fund allocations to the asset class were below 5%, while family offices and endowments set aside less than 10% on average; today, they average 24% of institutional portfolios, with some investors allocating considerably more than this.
For these large institutions with ample capital, the benefits of higher private market exposure in portfolios is clear. Private equity and venture capital investments outperformed UK public equities over the last five, 15 and 25 years. The research also found evidence to support higher private markets exposure. Over the past decade, investors with an allocation of 30% or more to private equity and venture capital outperformed those with 10% or less by 200 basis points.
The changed public market and economic environment may be causing some liquidity issues for institutional investors today, and this may impact private markets over the short term.
Yet over the long term, most institutions are increasing their exposure to private markets as they seek to generate higher returns than in public markets and shield portfolios from volatility and inflationary pressures.
Institutions intend to up their allocations to infrastructure to capitalise on largely inflation-linked contracts and energy transition, and to private credit, where loans are usually floating rate.