New Investcorp report focuses on rapid growth of private markets AUM

Investcorp, a global provider and manager of alternative investment products, has released a new whitepaper – “Increasing Allocation to Private Markets” – which reviews the trend of investors increasing their allocation of capital to private market investments such as private equity, private debt, real estate, absolute return, infrastructure and GP stakes.

During a turbulent 2020, when traditional asset classes faced several challenges, such as historic lows in fixed income yields and a volatile equities market, capital continued to shift towards private markets. Investor appetite has been influenced by factors such as active management approaches and longer investment horizons that offer the ability to navigate short-term pressures that can distort investment decisions in public markets. Additional influencing factors include excess returns, diversification benefits, improved risk-return profiles and exposure to societal megatrends such as aging populations, ESG, AI, climate change and the redefinition of global trade that underpin private markets.

Capital flows into private markets asset classes has driven rapid AUM growth of private markets relative to public markets and the investor base has broadened to include institutional and private investors. 

Managers in private markets have focused on product diversification and innovation; conventional fund products have expanded to include fund-of-fund products which allow investors to gain diversification across managers and secondary funds seeking to capitalise on LPs’ desire to exit investments and in turn create a degree of liquidity for investors.

Richard Kramer, Head of Risk Management at Investcorp, says: “The resilience of private markets’ performance during the volatility and uncertainty that defined the past 18 months, supports robust investor allocations to these asset classes. However, constructing a portfolio of private market investments is just as great an opportunity as it is a challenge, and yielding a substantial return from the market requires careful consideration of the value proposition and prevailing macro environment.”

Timothy Mattar, Global Head of Distribution at Investcorp, says: “While private equity is a core product of private markets portfolios, we are seeing a strong demand for other alternatives asset classes, including private debt and real estate.  The rationale for allocation to private markets remains compelling, generating differentiated sources of return for investors. As private markets mature further, we expect to see product designs and structures evolve to cater to changing investor appetites and capitalise on new investment opportunities.”