Institutional investors plan to allocate more to private equity and other private markets, despite rising interest rates, inflation and other concerns, according to a State Street survey released Monday.
The survey included traditional asset managers, private markets managers, insurance companies and asset owners across North America, Latin America, Europe and the Asia-Pacific region, from September to November.
Of the 480 investor institutions surveyed, 68% said their allocations to private markets will grow over the next few years. For 63% of respondents, private equity will be the largest private markets allocation, while 43% expecting private credit to be the largest.
Specific allocations by asset type are going to shift around, depending on the macroeconomic environment, "but the message I am taking is that the overall investing community is starting to get more comfortable with the idea," of private markets, despite economic pressures, said Jesse Cole, global head of private markets for State Street, in an interview. "I don't think it is going away. It is going to ebb and flow."
Survey respondents also intend to focus more on deal quality, with 47% saying they will be changing their due diligence processes, and 42% planning to raise their baseline standards, the survey found.
Managing data better to make informed investment decisions was another top priority for the investors surveyed, 53% of whom said they spend "considerable resources" on outdated systems. For 71% of them, migrating data storage and analysis to the cloud is the top priority.
Operational inefficiency and data management limitations can lead to higher borrowing and compliance costs, while addressing those can give asset managers a competitive advantage, Mr. Cole said.
