LPs to increase allocations to private assets within three years: survey

About 52 percent of institutional investors said that they plan to increase their allocations to private assets over the next three years as they hunt for a more diverse portfolio and higher returns, according to the Schroders Institutional Investor Study 2019.

According to the survey, 58 percent of investors in North America, 50 percent of investors in Asia and 49 percent of investors in Europe were focused on commitments to private assets over the next three years. Thirty percent of Latin American investors plan to decrease allocations in private equity during the same time period.

Schroders’ study, which surveyed 650 institutional investors, found that 69 percent of investors expect private equity to bring in returns of more than 5 percent, making it the greatest source of potential returns in private assets.

While investors are leaning strongly toward private assets, 52 percent said that trade wars and Brexit would affect the performance of their portfolios over the next year. In 2017, 32 percent of investors said that world events would impact their portfolios, while in 2018, 44 percent said that it would.

“Institutional investors can be forgiven for beginning to fear the worst,” Schroders’ global head of investment, Charles Prideaux, said in a press release. “A number of geopolitical uncertainties have been hanging over their heads for some time now and it currently is impossible to say if there is any sign of these concerns abating.”

Private equity makes up the second largest percentage of private assets among investors, behind real estate. Thirteen percent of investors allocate between 6 to 10 percent of their overall portfolio to private equity, the study found, while 8 percent allocates more than 10 percent, according to the study.

“Investors continue to believe that private markets [have] the potential to deliver outperformance relative to other asset classes where they might deploy institutional capital,” Managing Director of Industry Affairs at Institutional Limited Partners Association Jennifer Choi told Buyouts.

Fifty-nine percent of investors said that fees pose the biggest challenge when it comes to investing in private assets, according to the survey.

“LPs would much rather that wealth creation for GPs [be] derived primarily from their share of profits on well-managed investments, rather than management fees and other sources of fee income,” Choi said.

In addition to their concerns about fees, 53 percent said that liquidity issues are a hurdle; followed by 37 percent of investors who said complexity of the asset class was a challenge.

Action Item: Check out the study here: https://bit.ly/2q1RU0D