Infrastructure and private debt will remain the most attractive private market asset classes over the next one to two years, with 71% of institutional investors expecting to increase allocation to each, according to the latest private markets survey by global financial services provider State Street.
Over the next three to five years, however, private equity remains a contender, with almost three quarters (73%) of 408 institutional investors planning to increase allocations to the asset class during this period, while decreasing allocations in public markets to meet increased demand for private exposure.
According to State Street’s third annual private markets survey, 36% of institutions have already allocated over 50% of their portfolio to private markets; this is expected to grow to 41% of institutions over the next three to five years. Meanwhile, 59% of institutions have already allocated 30% or more to private markets, with the former expected to grow to 71% by 2028.
Among retail and DC investors, some 49% of those surveyed believed there was “strong demand” for access to private markets, while 54% believed current investment products do not make the asset classes suitable for these types of investors.
The global financial services provider surveyed institutional investors including traditional asset managers, private market managers, insurance companies and asset owners across North America, Latin America, Europe and the Asia-Pacific.
In a statement, Donna Milrod, Executive Vice President and Chief Product Officer at State Street, said that the shift from public to private markets was “not slowing down, with investors set to allocate more to private assets than ever before”. She described an “increasingly sophisticated private market” against the current economic backdrop and “investors’ desire for wider, more diverse avenues of capital”.
The survey also found that 43% of institutional investors believed that machine learning could potentially help with the operational challenges associated with private markets investing such as risk measurement and management, liquidity management, and the ability to forecast future and capital pacing, while 58% believed the same for generative AI. Almost 80% sought a centralised, accessible platform for public and private asset data.
Milrod added that institutional investors’ interest in AI was “driven by the industry’s historic deficiencies in quality private market data”, which remained a “major impediment that stands in the way of a firm’s ability to view and assess public and private assets data in one place”.
