Asset owners say private market assets primed for portfolio growth

Demand for private markets investments by asset owners and managers is expected to rise over the next five years as investors seek higher yields and greater diversification, according to a recent survey by State Street.
Asset owners say private market assets primed for portfolio growth

Private markets assets are set to build on a strong pattern of growth as investors seek to diversify their portfolios and hunt for better returns than those expected in public markets.

At the end of March 2021 assets under management in the private equity space alone reached an estimated US$4.1 trillion, according to Preqin, with that figure expected to more than double to US$9.1 trillion by 2025.

Over the next three to five years, asset managers expect that their median allocation to private market assets will increase from 30% to 35%, while asset owners believe it will increase from 22% to 28%, according to the State Street survey which was conducted with 170 private market asset managers and asset owners.

Source: State Street Alpha Private Markets Survey Report

The respondents identified the most significant drivers of this momentum to be diversification from listed markets — 59% of asset managers and 67% of asset owners — and better opportunities for return generation according to 52% of asset managers and 52% of asset owners.


Nearly half of the asset owners surveyed said they plan to increase their allocations to private equity, private debt and infrastructure in the next few years. For real estate, just over a third (35%) plan to allocate more, while 15% plan to cut down on real estate.

Source: State Street Alpha Private Markets Survey Report

The survey found that the four private markets each have their own predominant quality which makes them attractive to investors

Of the asset owners surveyed, 91% cited capital growth or alpha as a key attribute of private equity,

With private debt, 84% of asset owners said attractive yields and income generation were the key attributes. Inflation protection was the biggest attraction for real estate, with 64% of the respondents selecting it.

For infrastructure, the key qualities were diversification (61%) and the long-term nature of the asset class (60%).

Source: State Street Alpha Private Markets Survey Report

Some 29% of the asset owner respondents also cited high valuations as a major factor prompting them to look at private markets. In addition, some of the impetus to look beyond traditional, listed assets markets towards alternatives were prolonged interest rates and ultra-low public market yields


As of Q2 2021, Asia Pacific private markets average returns was at 8.61% as compared with the global average of 11.42%. Europe was the best performing region at 13.79% with the US at 10.8% according to State Street's proprietary data provided to AsianInvestor.

Over the past year, private equity as an asset class returned 55.27% on average with APAC region underperforming with 42.88%. Nonetheless, this still represented attractive levels of return as compared with other public markets within the region.

According to the data, APAC is a younger region for private markets so most funds are still in investment periods. It is expected that distributions will kick in over the next 5-7 years and the capital will need to be redeployed. This will further drive growth in APAC private.

Although the cost of liquidity is always a factor for investors when it comes to investing in private assets, as private markets performance continues to outpace the public markets, investors are increasingly looking towards the cost of not investing.

Globally, private assets delivered 55.3% return in the past year, far exceeding public markets, a factor that State Street believes will continue to drive investors towards alternatives assets into 2022.

In another APAC strategy and performance survey consisting of 253 fund managers, State Street found that on average buyout funds returned the strongest level of performance at 46.82% with venture capital coming in close at 41.23%.

Meanwhile debt strategies have returned only 12.08%

For APAC, the health care sector was the best performing sector with 1 year returns of 61.98% followed by information technology at 50.18%. Surprisingly, the financials sector performed third best with returns of 44.81%.

This trend is mostly consistent when looking at State Street’s 5-year returns average data which shows healthcare at 28.29% and information tech averaging 28.11% returns. However, in this 5-year period the consumer sector returned an average of 17.63% over financials at 10.41%.

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