Despite Inflation Fears and Higher Interest Rates, State Street Survey Finds More Than Two Thirds of Institutional Investors Continue to Grow Private Markets Allocations
February 06 2023 - 6:50AM
Business Wire
Private equity expected to remain the most in-demand alternative
asset class in the next two to three years
State Street Corporation (NYSE:STT) today released the results
of a survey1 of private markets allocations from 480 institutional
investors including traditional asset managers, private market
managers, insurance companies and asset owners across North
America, Latin America, Europe and Asia-Pacific.
"The tailwinds of the last decade may be gone, but it is clear
that private markets remain extremely attractive," said Paul
Fleming, head of the Global Alternatives Segment for State Street.
"Our survey finds that three quarters of respondents believe
tougher economic conditions will create discounted opportunities,
but investors are likely to bide their time, as at least half feel
valuations have not yet fully adjusted. Dry powder will become
invaluable in the next couple of years."
The survey finds that 68 percent of the respondents plan to
continue their allocation to private markets in line with current
targets, despite acknowledging that rising interest rates reduce
the attractiveness of the highly leveraged asset class. Within
private markets, private equity (PE) remains the most attractive
asset class, with 63 percent of institutional investors
anticipating making it their largest allocation in the next two to
three years. Private credit is the asset class investors are least
likely to make their largest allocations to, (43 percent), with
real estate and infrastructure both at 48 percent. Respondents made
it clear they were going to be more focused on deal quality in the
future with many making changes to their due diligence processes
(47 percent) or narrowing the universe of investments they will
consider through higher baseline standards (42 percent).
Asset managers can unlock huge potential of retail market by
increasing transparency
There is a strong consensus among private market managers (66
percent) that alternative assets can add value for retail investors
who are seeking new sources of diversification. Moreover, 72
percent of respondents believe that increased transparency will
make private market assets suitable for retail investors. A
majority (58 percent) believed digital fractionalization of private
markets assets would contribute to this trend.
"Private market managers are quite bullish on tokenization going
mainstream in the next three plus years, as they look to widen
their investor base," continued Fleming. "However, democratization
will place fresh demands on private market managers from a
regulatory and transparency perspective. The majority of managers
believe regulators will be compelled to introduce more stringent
reporting requirements as retail participation rises. It is
critical for private managers to enhance their data management,
which will help them reach the next stage in their growth."
Private markets data management remains a huge
challenge
State Street's survey finds that more than half (53 percent) of
institutions report spending considerable resources on manual
processes and outdated systems. Maximizing the potential of data to
make more effective decisions is the greatest focus for
institutional investors, although less than 40 percent of them
think this area is well developed in their organizations. As
institutions prepare for new demands on operations, migrating data
storage and analysis to the cloud is their top priority, with 71
percent of respondents investing in it.
"There are strong imperatives for private market investors to
address operational inefficiency and data management limitations as
higher borrowing costs and a rising compliance burden squeeze
margins. A volatile economic backdrop also puts added emphasis on
risk management," said Jesse Cole, global head of Private Markets
at State Street. "On top of creating efficiencies, many investors
also believe that data management and analysis capabilities are a
source of competitive advantage and managers need highly structured
data management processes in order to maximize returns."
1 The study, commissioned by State Street and conducted by
CoreData Research, surveyed 480 respondents from traditional asset
managers, private market managers, insurance companies and asset
owners across four regions, North America, Latin America, Europe
and Asia Pacific in September to November 2022.
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's
leading providers of financial services to institutional investors
including investment servicing, investment management and
investment research and trading. With $36.7 trillion in assets
under custody and/or administration and $3.5 trillion* in assets
under management as of December 31, 2022. State Street operates
globally in more than 100 geographic markets and employs
approximately 42,000 worldwide. For more information, visit State
Street's website at www.statestreet.com.
*Assets under management as of December 31, 2022 includes
approximately $59 billion of assets with respect to SPDR® products
for which State Street Global Advisors Funds Distributors, LLC
(SSGA FD) acts solely as the marketing agent. SSGA FD and State
Street Global Advisors are affiliated.
© 2023 State Street Corporation - All Rights Reserved
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Media (North America) Brendan Paul +1 401 644 9182
Bpaul2@statestreet.com
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mchau@statestreet.com
Media (APAC) Kate Cheung +852 3556 1103
kate.cheung@statestreet.com
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