Asset managers expect their median allocation to private market assets to rise from 30 per cent to 35 per cent, while asset owners believe it will increase from 22 per cent to 28 per cent, a recent survey conducted by State Street revealed.
Respondents believe the momentum will be driven by diversification from listed markets and better opportunities for return generation, as well as the general perception that private markets are a stable source of yield.
The finds also showed that asset owners are particularly attracted to private assets that make a “positive, measurable contribution to sustainability or other ESG criteria”, with 61 per cent of asset owners expressing interest in more sustainable investment options.
State Street also identified some significant barriers to investing in private markets, with 64 per cent of respondents citing weak standards of accounting and audit controls as a hindrance. As many as 60 per cent said high management fees relative to public markets are an issue.
As such, State Street noted asset managers will have to improve their data management and reporting processes and adopt more sophisticated technologies.
“Having a single, unified data management platform to manage data across the front, middle and back offices, is no longer a ‘nice to have’,” said Paul Fleming, global head of State Street’s Global alternatives segment.
“It will be what differentiates the trailblazers from their competition in private markets for years to come.”
Looking to the future, State Street noted a general sense of optimism.
“It’s interesting to see that respondents remain largely optimistic about the future of private markets investments, and private market managers expect to see greater diversity of investors turning to the asset class in the near future; however investors in both public and private markets are realising the risk and inefficiencies created across their bespoke front, middle and back office solutions” said John Plansky, head of State Street Alpha.
“With the right technology and partners in place, asset managers will be better equipped to overcome the challenges of private markets and maximise value in the market boom still to come.”
