- Infrastructure and private debt remain the top private market
asset classes over the next 1-2 years; roughly half of respondents
see “strong demand” for private market assets among retail and DC
investors
State Street Corporation (NYSE: STT) today released the results
of its third annual private markets survey1, which explores the
allocations of 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 survey reveals that the rotation from public to private
assets within portfolio allocations will grow further in the coming
years. Over a third of institutions (36%) have already allocated
more than 50% of their portfolio to private markets, and this is
set to grow to 41% of institutions doing so over the next three to
five years. Over half of institutions (59%) have already allocated
30% or more to private markets, and this is expected to grow to 71%
by 2028.
Infrastructure and private debt are the most attractive asset
classes, with 71% of institutional investors expecting to increase
allocation to each over the next one to two years. However, longer
term private equity is set to return to favor, with almost three
quarters (73%) of investors planning to increase allocations to the
asset over the next three to five years. Investors intend to
decrease allocation in public markets to meet increased demand for
private exposure.
“The great rotation from public to private markets is not
slowing down, with investors set to allocate more to private assets
than ever before,” said Donna Milrod, executive vice president and
chief product officer at State Street. “This increasingly
sophisticated private market universe means the current economic
environment, coupled with investors’ desire for wider, more diverse
avenues of capital, is making private markets attractive now and
for the foreseeable future.”
In the near term, challenging economic conditions will
remain
The majority of respondents (61%) believe that inflation has
peaked in their local markets, but most do not believe it will fall
back within their local central banks’ target range over the next
two years. Most respondents (58%) are finding that macro challenges
are making fundraising difficult, which is leading to delays of
three months to a year or more. In response, institutions are
increasing their diversification, investment in risk management,
and reducing risk exposure with 43% exploring fresh market niches,
38% enhancing risk management processes, and 34% reducing risk to
protect against downside.
“Overall, while demand for private market assets continues to
grow, investors are also experiencing a tightening supply of
quality deals and express that borrowing costs can be an issue for
them,” said Scott Carpenter, global head of Private Markets &
Credit at State Street. “Central bank decisions on rates and the
state of inflation will heavily influence opportunities and
investing behaviors over the next couple of years.”
AI-enabled technological innovation is core to institutional
investors’ private markets outlook
Risk measurement and management, liquidity management, and the
ability to forecast future and capital pacing are among the top
operational challenges institutions face when investing in private
markets. Almost 80% of investors are looking for a centralized,
accessible platform for public and private asset data, as the
current lack of availability, accuracy, and timeliness of data is
an overlooked aspect of private markets.
However, the recent advancements in AI have the potential to
improve private markets operations significantly. Nearly half of
respondents (43%) globally believe that machine learning has the
potential to enhance private markets operations, while more than
half (58%) believe that generative AI will enhance operations.
“AI excitement from institutional investors is driven by the
industry’s historic deficiencies in quality private market data,”
added Milrod. “Subpar access to quality data is 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. As we speak with
clients, it is clear AI has the potential to hugely improve this
aspect of the market.”
Improvements through legislation key to driving increased
retail participation
Institutions surveyed remain skeptical about prospects for
increased retail investment in private markets, but see potential
for legislation to open options and drive flows. More than half of
respondents (54%) believe current investment products do not make
the asset classes suitable for retail investors, while around half
(49%) believe there is strong demand for access to private markets
among retail or DC investors.
Please click here for the full report: 2024 Private Markets
Outlook: From headwinds to tailwinds.
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
2023.
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 $43.9 trillion in assets
under custody and/or administration and $4.3 trillion* in assets
under management as of March 31, 2024, State Street operates
globally in more than 100 geographic markets and employs
approximately 46,000 worldwide. For more information, visit State
Street's website at www.statestreet.com.
* Assets under management as of March 31, 2024 includes
approximately $66 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.
© 2024 State Street Corporation
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Media: Brendan Paul Mobile: +1 401 644 9182
Bpaul2@statestreet.com
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