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Investing

Asset owner appetite for illiquid assets drives co-investment interest – State Street survey

Institutional investors plan to look to co-investments or joint ventures as a means of accessing new investment opportunities, particularly in illiquid assets, according to a survey issued by State Street Corp. (STT)

More than half — 54% — of asset owners surveyed see co-investment as a means of gaining expertise. Over the next 12 months, 68%, 65% and 48% of asset owners plan to co-invest in infrastructure, real estate and private equity, respectively.

State Street's survey also found that over the next 12 months, asset owners are planning to increase their exposure to these illiquid assets.

Other results of State Street's asset owner survey revealed 66% of institutional investors believe growth is more challenging to achieve in the current market environment than in the recent past.

In addition, over the past five years, nearly a third of asset owners surveyed — 30% — have brought some asset management activities in-house; and 23% plan to do so in the next 12 months.

However, when bringing more functions in-house, asset owners have faced multiple challenges. More than half of the respondents — 53% — stated operational resources are being drained because of managing the process, while 57% have struggled to hire the necessary staff.

Two-thirds of asset owners — 66% — also believe institutional investors with multiple asset pools will increasingly consolidate them over the next five years.

One consequence of the trend toward gaining scale is the reassessment of priorities, with asset owners doubling down on certain operations and outsourcing others. More than a third of asset owners — 36% — have outsourced certain functions so they can focus on value-adding activities in-house, with 37% outsourcing functions where they were unable to get scale quickly in-house.

More than 200 asset owners were polled during March and April. The full survey is available on State Street's website.