More than two-thirds (68 per cent) of global institutional investors say they plan to maintain allocations to private markets in line with current targets, despite the potential for rising interest rates to reduce the attractiveness of the highly-leveraged asset class, according to a new survey by State Street Corp.
The survey, which polled 480 institutional investors from around the world, found 63 per cent said they anticipate their largest private market allocation in the next two to three years will be in private equity, followed by real estate and infrastructure (48 per cent, respectively) and private credit (43 per cent).
Respondents said they’re focusing on deal quality by making changes to their due diligence processes (47 per cent) and narrowing the universe of investments they’ll consider through higher baseline standards (42 per cent).
The survey also found private market data management remains a challenge. More than half (53 per cent) of respondents said they spend considerable resources on manual processes and outdated systems, while 71 per cent said their top data priority is migrating data storage and analysis to the cloud.
“The tailwinds of the last decade may be gone, but it is clear that private markets remain extremely attractive,” said Paul Fleming, head of global alternatives for State Street, in a press release. “Our survey finds that three-quarters of respondents believe tougher economic conditions will create discounted opportunities, but investors are likely to bide their time, as at least half feel valuations have not yet fully adjusted. Dry powder will become invaluable in the next couple of years.”