Almost three-quarters, 73%, of global institutional investors expect private markets investments to beat public markets over the next five years.
This is according to Aviva Investors and its Private Markets Study, which also found that diversification was the main reason for 70% of respondents to invest in private markets today. However, 47% states its was due to their ability to provide an illiquidity premium as a key reason to allocate to private markets in the next two years compared to 40% today.
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In addition, 51% expect to increase private markets investments allocations over the next 24 months.
Globally, private markets assets account for 11.5% of investor portfolios, a percentage point increase from last year.
Furthermore, respondents who allocate 10% or more of their portfolios to private markets has also grown to 56%, rising from 48% previously.
David Hedalen, head of private markets research at Aviva Investors, said: “The illiquidity premium is emerging as a driving force behind the trend towards Private Markets, and investors are recognising it as a reason to increase their allocations to these strategies. Investors have had to adapt to changing market conditions over the last 12 months. Despite this, allocations to Private Markets have continued to trend upwards. It suggests a recognition of these asset classes to deliver across various stages of the investment cycle and offer diversification from public markets.
“The consensus that equity-based asset classes are those expected to deliver strongest-risk adjusted returns over the next five years comes despite the current interest rate environment creating a backdrop of elevated all-in yields for debt. We think this is a prudent view, with the market having entered a new phase where valuations are stabilising and liquidity is returning. With discerning asset selection, investors able to allocate into this part of the cycle should be able to look forward with confidence.”
