The market environment facing institutional investors at the end of 2022 is very different, and even more challenging, than it was at the start of the year. Even so, many of the key findings from this years’ Schroders Institutional Investor Study – conducted in March – echo those of previous years. This year’s Institutional Investor Study - spanning across 770 institutional investors, collectively responsible for US$27.5 trillion in assets - highlights that diversification and higher returns continue to be the key reasons investors use private markets. We were not surprised that expectations were for private asset allocations to change little.
While markets never stand still, the market dynamics in 2022 have been extraordinary. Since this year’s study was conducted, events have transpired that have left the landscape drastically changed. Nevertheless, the longer investment horizon of private assets means the continuation of the long-running series - and what it can illustrate over time - we feel is warranted and valuable.
Certain key themes, such as the comparative resilience of private markets, remain undimmed. Some challenges are as pertinent now as they ever have been.
Overall, the study indicated long-term investor expectations are for private asset allocations to remain steady. This was the finding when allocations to developed equities and fixed income were expected to decline versus last year. Indeed, the majority of respondents to the Study were, in March, eager to add to various types of private assets.
Q: Approximately what percentage of your institution's portfolio is currently allocated to each of the following asset classes? Current and expected allocations
Diversification and higher returns have long jockeyed for position as the primary reason investors allocate to private markets, according to this study. These motivations have, in general, not changed over time.
In 2022, investors again cited the potential for higher returns. More than three quarters of respondents – 76% – said they use private assets chiefly for return benefits, while 70% cited diversification as the main reason for investment in private markets.
Q: To what extent are the following factors reasons for you to invest in private assets?
The top two concerns amongst respondents were virtually unchanged from last year, with 58% citing each of low transparency and high fees. Valuations were also clearly on investors’ minds. More respondents than last year were concerned or very concerned about pricing. That said, the number of investors concerned about valuations remained below the levels seen in 2020. The complexity of private markets was cited as a material issue for almost half of respondents. Complexity has not, in our view, increased specifically, but investing in private assets does require specialist skills.
In your experience, what are the main challenges of investing in private assets?
To view the full results please refer to the PDF report
Schroders annual Institutional Investor Study analyses the investment perspectives of 770 global institutional investors on the investment landscape, sustainability and private assets. Download the full report which sets out investors’ thoughts on the macroeconomic environment and their asset allocation decisions.Download Global Private Assets report