Investors still ‘underallocated’ across private markets, especially private credit – Goldman Sachs

Investors remain underallocated across private market strategies, especially in new and growing allocations including private credit, according to Goldman Sachs Asset Management’s private markets survey released Oct 21.

Forty-six percent of investors reported they were underallocated to private credit, according to a survey of 235 institutions and fund managers conducted from June 13 to Aug. 5, 2024.

The respondent breakdown was 19% general partners, including private equity, private credit, real estate, infrastructure managers and managers investing across strategies, and 81% limited partners, including public and private pensions, among others.

Investor and manager concerns also shifted over the past year. Geopolitical conflict took the top spot for macro investment risk for 60% of respondents this year followed by inflated valuations and economic recession, according to the survey.

In 2023, 48% of respondents had ranked economic recession as the number one investment risk, followed by geopolitical conflict and inflation.

Private credit remains the number one segment where investors are focused on deploying capital over the next 12 months, the survey found.

Thirty-four percent of investors ranked private credit as their top focus for deploying capital, followed by 21% focused on private equity; real estate and infrastructure tied for third at 11%.

Investor over-allocations were largest in private equity at 25%, with investors based in the Americas the most over-allocated at 36%, according to the survey.

As investors continue to build their private credit and infrastructure targets, they are focusing on fewer relationships, according to the report.

And they are showing “strong appetite for new access points, including co-investments, secondaries, and semi-liquid vehicles,” said Stephanie Rader, global co-head of alternatives capital formation at GSAM. Roughly half are now allocating to secondaries and co-investments.

When evaluating private market managers, 51% of investors rated track record as the top characteristic, closely followed by fees and terms.

While relative target allocations were largely unchanged from 2023, growth in portfolio assets “led to an uptick in absolute targets through a reverse-denominator effect,” Goldman Sachs reported.

Goldman Sachs had approximately $3.1 trillion in assets under supervision as of Sept. 30.