Institutional investors are set to bolster allocations to private markets, with income generation as the main driver, according to the results of BlackRock Alternatives’ inaugural Global Private Markets Survey.
BlackRock Alternatives canvassed the views of capital allocators representing $15trn (€13.7trn) in total assets under management – with $3.2trn invested in private markets. BlackRock Alternatives said this represents around a quarter of the global private market’s institutional investment landscape.
Edwin Conway, global head of BlackRock Alternatives, said: “Over the past 20 years, we have seen private markets grow from a niche category to the cornerstone of many portfolios. The results of our inaugural Global Private Markets Survey show sophisticated investors have moved on from the 60/40 allocation model and that private assets will continue to grow as a percentage of global portfolios.
“Despite broad market declines last year, recession concerns, and recent market turmoil, we see that short-term uncertainty is not derailing the growth of private markets.”
While income generation emerged as the most important factor driving private market investments, with 82% of respondents identifying it as the key issue in their allocation considerations, capital appreciation is the next highest priority when it comes to private market allocations, according to more than half (58%) of those who took part in the survey.
The study also found that the search for income is sparking significant investor interest in private credit, “particularly infrastructure and real estate debt, as well as distressed strategies”.
More than half of respondents globally plan to add to their private credit holdings. In the US and Canada, more than a third of investors expect to “substantially increase” their private credit allocation in 2023, while this jumps to 71% across Europe, the Middle East and Africa (EMEA).
Investors looking to increase their private equity allocations cited mature companies as the most attractive opportunity for returns, followed by venture capital, secondaries, and buyouts, according to BlackRock Alternatives’ research.
Looking at private credit, capital allocators see the biggest opportunities in infrastructure or real estate debt, driven by expected tailwinds from recent US infrastructure legislation and what some see as a temporary dislocation in property values as a result of higher interest rates. Distressed strategies are a close second.
In infrastructure, respondents identify emerging markets as the greatest opportunity, with transportation and renewables following closely.
Although the survey was conducted prior to the recent bank failures, the respondents said liquidity remains “the single biggest barrier to investing in private assets”.