Institutional investors plan increase to private assets – study

A large majority of institutional investors participating in the Schroders Institutional Investor Study 2021* have said they plan to increase their allocation to private assets.

Out of 750 institutional investors that took part in the research globally, 90% said they would increase their exposure to one or more private assets in the next 12 months.

Georg Wunderlin, global head of private assets at Schroders Capital, said that it is “especially encouraging” that “the versatility within private markets is being recognised more and more”.

“It’s interesting to see that private palettes will likely be growing more colourful, with a key finding of the 2021 study that investors are increasingly looking to branch out and explore new areas,” he said.

Private equity remains the area attracting the most capital, he added, and the second most popular asset class – infrastructure equity – is also unchanged from the 2020 study results.

“However, 29% of investors this year also expect to invest more in impact strategies, a type of exposure private assets is uniquely positioned to deliver,” Wunderlin said.

He acknowledged that sustainable investing has grown significantly in liquid markets in recent years, so a rise in attention within private markets was inevitable.

“The much greater proximity that private asset investors have to their portfolio holdings means positive change can be delivered with precision, and with visible, real-world results,” he said.

Pandemic impact

According to the research private asset allocations continue to be increased broadly across the main categories: private equity, infrastructure equity and private debt.

Additionally, the increased emphasis on sustainability and impact is also clearly evident; institutional investors seem to be looking for investments that have a positive social and environmental impact in addition to considering ESG risks to operational and financial performance.

“The impact of COVID-19 affected all aspects of our lives, highlighted inequality and drew our effect on the environment into sharper focus,” Wunderlin said, adding that 37% of respondents stated that the pandemic has also made them put more importance on ESG considerations when investing in private assets.

“The growing momentum behind sustainability in private assets will certainly be one to watch over the coming years,” he said.

The study has shown that 80% of investors agree or strongly agree that adding diversification was their main justification for pursuing private assets. Even ‘generating high returns’ was bumped into second place (75%).

It also revealed that 32% of respondents plan to increase their infrastructure equity allocation which is unsurprising in this environment.

“Infrastructure equity assets can offer robust yields in the context of ultra-low interest rates, while protecting capital and potentially anticipating inflation rises,” according to the study.

Key Challenges

Wunderlin stated that fees remain a primary obstacle for investment, whereas the perception of liquidity as an issue has fallen materially.

In the 2020 study, 56% of participants cited liquidity as an issue, while in 2021, 42% said illiquidity was an impediment.

The complexity of private assets as an investment route also declined by a wide margin, he noted. Only 35% of investors singled out complexity as a concern, versus 47% 12 months ago.

“Private assets offer investors a wide risk and return spectrum, introducing, for example, complexity and liquidity premia to traditional risk and return drivers. A huge number of private assets-focused investment solutions can also be tailored to individual investor’s preferences,” he noted.

*The Schroders Institutional Investor Study analyses the investment perspectives of 750 global institutional investors on the investment landscape, private assets and sustainability. The respondents represent a spectrum of institutions, including corporate and public pension plans, insurance companies, official institutions, private banks, endowments and foundations, collectively responsible for $26.8trn in assets. It was carried during February and March 2021. The respondents were split as follows: 204 in North America, 275 in Europe (including South Africa), 205 in Asia-Pacific and 66 in Latin America.

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