Private Market Allocations Surge to Record £4.7 Trillion as Investors Chase Higher Returns
Institutional investors have propelled private market allocations to unprecedented heights, with a staggering £4.7 trillion now invested globally. According to the latest research from Aviva Investors, private markets now constitute 12.5 per cent of overall portfolio allocations, marking a significant milestone in investment strategy.
Regional Investment Trends Reveal North American Dominance
North American investors lead the charge with the largest average allocation to private markets, dedicating 14.4 per cent of their portfolios. European investors follow closely with 12.1 per cent, while the Asia-Pacific region allocates 11.9 per cent. Notably, North America also experienced the most substantial year-on-year increase, rising nearly two per cent from 12.5 per cent.
Investor Confidence Drives Future Growth Plans
Nearly 90 per cent of investors intend to either increase or maintain their private market allocations over the next two years. This decision is largely driven by a desire to diversify portfolios to manage risk and enhance returns. Over half of investors cite "the presence of liquidity premium" as a key reason for boosting investments, a figure that has doubled from just 25 per cent three years ago.
David Hedalen, head of private markets strategy and research at Aviva Investors, commented: "Becoming more confident in this reward for having increased illiquidity in portfolios will drive investor confidence that these assets can generate improved returns over the long run. We think this helps to explain why it is fast becoming a central pillar for allocating to private markets."
Asset Class Performance Expectations Shift
Across all regions, investors anticipate that private equity and infrastructure will deliver the strongest returns over the next five years, displacing real estate equity from the top spot. Private corporate debt ranks as the third strongest option in North America and Europe, while Asia-Pacific investors favour real estate equity for this position.
Current allocations show real estate equity representing 22 per cent of total investments, followed by private equity at 21.5 per cent and private corporate debt at 12.5 per cent. Both private equity and private corporate debt have seen the most significant increases since Aviva's previous study.
Pensions Market Embraces Private Assets
Within the pensions sector, defined contribution (DC) schemes account for 59 per cent of total pension assets. A majority of global DC funds believe that incorporating private market assets will yield higher returns for members, with European investors expressing the strongest agreement.
Nearly 60 per cent of DC funds also advocate for a greater focus on long-term value rather than cost when considering private market additions. Interestingly, European and Asia-Pacific investors agree that private market investments stimulate domestic economic growth, whereas only 13 per cent of North American investors share this view.
This surge in private market allocations underscores a broader shift in investment strategies, as institutional investors increasingly seek to capitalise on the potential for enhanced returns and portfolio diversification in an evolving financial landscape.
