The UK’s recent government white paper – ‘Levelling up the United Kingdom’ – forcefully pushes for private investing. In it, Prime Minister Boris Johnson claims he is determined to “break that link between geography and destiny, so that it makes good business sense for the private sector to invest in areas that have for too long felt left behind”.
The paper (read more, https://realassets.ipe.com/news/uk-government-looks-to-push-16bn-of-lgps-capital-to-local-investments/10057824.article) states that, by 2030, domestic public investment in research and development outside the Greater South East will increase by at least 40%, and over the Spending Review period by at least one third. This additional UK government funding will seek to leverage at least twice as much private sector investment over the long term to stimulate innovation and productivity.
But this thirst for private asset investing is not limited to the UK. Asset supply was boosted globally by regulations imposed on banks in the wake of the 2007-09 financial crisis, which dramatically reduced banks’ ability to hold risky or illiquid instruments.
In post-pandemic times, it is more important than ever for asset owners to be able to invest in assets that often have lower volatility than their public counterparts, offer diversification benefits and uncorrelated returns.
While equity and bond markets have since rebounded, record valuations for many leading indices have left many investors questioning how much potential there is for further gains in these asset classes.
As an alternative source of return, private assets can help to diversify investment portfolios and offer potential capital growth to help meet long-term goals. Pension funds and other institutions are increasingly turning to private assets: private equity, venture capital, infrastructure, real estate, and direct lending.
Most recently, pension schemes have significantly increased their allocations to private equity and infrastructure assets. The investment argument for these allocations is sound, given the high prices of traditional public investment assets.
A recent report by global consultancy McKinsey found that private equity, for instance, outperformed public markets over the past 10 years and has been the highest-returning asset class in private markets since 2006.
Venilia Amorim, Editor, IPE.com