State Street Private Markets Survey Finds Macro Challenges Not Dampening Demand; Public To Private Shift Set To Grow Further

State Street Corporation (NYSE: STT) today released the results of its third annual private markets survey¹, which explores the allocations of 480 institutional investors including traditional asset managers, private market managers, insurance companies, and asset owners across North America, Latin America, Europe, and Asia-Pacific.

The survey reveals that the rotation from public to private assets within portfolio allocations will grow further in the coming years. Over a third of institutions (36%) have already allocated more than 50% of their portfolio to private markets, and this is set to grow to 41% of institutions doing so over the next three to five years. Over half of institutions (59%) have already allocated 30% or more to private markets, and this is expected to grow to 71% by 2028.

Infrastructure and private debt are the most attractive asset classes, with 71% of institutional investors expecting to increase allocation to each over the next one to two years. However, longer term private equity is set to return to favor, with almost three quarters (73%) of investors planning to increase allocations to the asset over the next three to five years. Investors intend to decrease allocation in public markets to meet increased demand for private exposure.

“The great rotation from public to private markets is not slowing down, with investors set to allocate more to private assets than ever before,” said Donna Milrod, executive vice president and chief product officer at State Street. “This increasingly sophisticated private market universe means the current economic environment, coupled with investors’ desire for wider, more diverse avenues of capital, is making private markets attractive now and for the foreseeable future.”

In the near term, challenging economic conditions will remain

The majority of respondents (61%) believe that inflation has peaked in their local markets, but most do not believe it will fall back within their local central banks’ target range over the next two years. Most respondents (58%) are finding that macro challenges are making fundraising difficult, which is leading to delays of three months to a year or more. In response, institutions are increasing their diversification, investment in risk management, and reducing risk exposure with 43% exploring fresh market niches, 38% enhancing risk management processes, and 34% reducing risk to protect against downside.