While some wealth management figures worry that enthusiasm for private market investments can be hyped, a survey suggests that the fund buyers out there still think clients aren’t investing enough in these sectors.
Most fund buyers in Asia and Europe think that clients don’t have
enough exposure to “private alternatives” – private equity,
credit, forms of property and other assets – according to a
survey this week from PGIM
Investments.
PGIM, which has $1.34 trillion in assets under management (as of
31 March 2024), operates across a range of fields, including
alternative investments.
In Asia, 76 per cent of fund buyers say clients are underinvested
in private market strategies, compared with 64 per cent in
Europe. To encourage a shift, such gatekeepers want more
attractive fee structures, more transparency about these assets,
and easier access.
Encouraged by more than a decade of ultra-low interest rates, a
shift from public to unlisted corporate structures, and the rise
of “passive,” index-tracking entities such as ETFs,
investment houses have piled into the private markets space where
they can earn higher fees.
For the buying side, the illiquidity premium for holding
non-public assets is an attraction. There are question marks,
however. The International
Monetary Fund has
raised red flags about private credit markets’ exposures to
rising interest rates. Figures in the US family offices sector
have told this news service they fear that the private market
story has been over-hyped.
PGIM’s latest Gatekeeper Pulse® study canvassed the allocation
plans, investment attitudes and manager preferences of 210 UK,
continental European and Asian gatekeepers at large global
financial institutions. All respondents have assets under
management of at least $1 billion.
Matt Shafer, the head of international distribution at PGIM
Investments, said he expects private markets to witness a surge
in demand over the coming years – echoing the ascension of
emerging markets investing near the turn of the millennium.
“While it took time for investors to fully embrace the
intricacies of investing in emerging market equity and debt, it
would be hard to argue that a portfolio is adequately diversified
today without exposure to the developing world. In the coming
years, it is realistic for private markets to be thought of [in]
the same way,” Shafer said.
Close correlations between equities and bonds, PGIM said,
encourage 43 per cent of gatekeepers to seek diversification,
with 41 per cent identifying private alternatives as the top
asset class.