The average allocation to private markets by institutional investors has risen to 12.5% of overall portfolios, a new study by Aviva Investors has indicated.
This is according to the latest annual Private Markets Study by Aviva Investors, with the figure the highest recorded average in eight years of the study.
Aviva Investors surveyed 500 global institutional investors from across the UK and Europe, North America and Asia-Pacific, together representing $6.5trn of assets under management.
Of the three regions surveyed, North American institutional investors had the highest average allocation to Private Markets, with 14.4% of overall portfolios invested in such strategies. This compared to 12.1% in Europe and 11.9% in Asia-Pacific.
North American investors represented the largest year-on-year increase in allocations to private markets across the three regions, with allocations climbing by 1.9% compared to last year (12.5%).
Aviva Investors also found that 88% of institutional investors are planning to either increase (49%) or at least maintain (39%) their private markets allocations over the next two years. The study also revealed that 76% of investors are expecting private markets returns to outperform public markets over the next five years, a figure up from 73% in last year’s study.
Over three quarters of respondents (76%) cited “diversification of risk and returns” as a primary reason for allocating to private markets, alongside “the presence of an illiquidity premium” (55%), where investors are compensated with higher returns to reflect the increased illiquidity of an investment.
“This year’s study shows the increasing importance of illiquidity premia as a major factor for investors allocating to private markets, with 55% of global investors viewing it as a driver, up from just 25% in 2023,” head of private markets strategy and research at Aviva Investors, David Hedalen, commented.
“Investors in private markets are increasingly leveraging better data to calibrate models and make more informed decisions and illiquidity premia forms part of this conversation. Becoming more confident in this reward for having increased illiquidity in portfolios will drive investor confidence that these assets can generate improved returns over the long run.
“We think this helps to explain why it is fast becoming a central pillar for allocating to private markets.”
