Three in 10 European fund selectors shift focus to private markets – CoreData

by | Aug 30, 2022

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Nearly three in 10 European financial organizations are switching their investment focus to private markets, new research shows.

In a CoreData Research study of 130 European fund selectors, 27% said their organization is shifting its investment strategy from public markets to private markets.

A belief that private markets offer stronger return prospects is hastening the shift from the public to private arena.

Almost a third (31%) of respondents think private markets will consistently outperform public markets going forward. Furthermore, half (51%) say low bond yields and rising inflation are compelling their organization to look for opportunities in private debt.

While investors turn to private markets to generate superior returns, they are also searching for sustainable returns.

Nearly four in 10 (38%) fund selectors think private markets will be instrumental in achieving net zero carbon emissions. This is fuelling demand for renewable energy — more than half of respondents (55%) say their organization plans to increase investment in renewable energy infrastructure over the next five years.

And a similar proportion (53%) think the role of real assets in the energy transition creates an unprecedented investment opportunity.

“These findings show how private markets are fast becoming central to investment strategies as they move from the alternative to the mainstream,” said Andrew Inwood, founder and principal of CoreData. “While private markets offer the prospect of superior, uncorrelated returns, they also present a broader opportunity set by tapping into structural trends at the forefront of economic and sustainable change.”

Meanwhile, expertise is the most sought-after asset manager attribute when investing in private markets. Nearly eight in 10 (79%) fund selectors say a high level of internal expertise and resources is important when selecting an asset manager.

A long track record managing private assets is the next most-valued manager capability (75%), followed by outperformance over recent years (68%) and the ability to embed ESG criteria into the private asset investment process (54%).

Beyond these specific skillsets, fund selectors favour the big players. Four in 10 (40%) agree they prefer large global asset managers when investing in private markets compared to just 17% who disagree.

Despite the appeal of private markets, some respondents are concerned the investment dynamic will alter as these assets become increasingly popular.

More than four in 10 (44%) think private markets are getting crowded and it’s becoming more difficult to allocate capital to the sector. And more than a third (36%) think private markets will be subject to tighter regulation which will dent their appeal.

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