BlackRock found in its inaugural Global Private Markets Survey that income generation stands front and center as allocators are sourcing private markets managers at a fast pace.
More than 70% of respondents said they would increase their allocations to private equity this year, while more than half of investors said they would invest in private credit in 2023, the survey showed.
The survey collected the views of an estimated quarter of the global private market’s institutional investment arena, with participants accounting for $15 trillion in total assets under management, of which $3.2 trillion are invested in private markets.
“Over the past 20 years, we have seen private markets grow from a niche category to the cornerstone of many portfolios,” said Edwin Conway, global head of BlackRock Alternatives, which manages $320 billion in private market assets. “The results of our inaugural Global Private Markets Survey show sophisticated investors have moved on from the 60/40 allocation model and that private assets will continue to grow as a percentage of global portfolios. Despite broad market declines last year, recession concerns and recent market turmoil, we see that short-term uncertainty is not derailing the growth of private markets.”
The survey drilled down to look at the portfolio level and what was driving interest across private equity and private credit strategies. Income generation drove much of the interest, with 82% saying that was the main factor for the ongoing change in their asset allocations. Just under 60% said capital appreciation was also a factor.
The obituary for the old school 60/40 mix has been widely read in the last five years as trustees on average institutional allocators have a 24% allocation rate to private markets. And as that figure grows, investors have said they see infrastructure and real estate debt, niche real estate and mature private companies as some of the most sizable opportunities.
According to the BlackRock survey, the U.S. and Canadian markets are driving much of the appetite, as their average allocations to private markets is slightly higher than the global average at 28%.
Private equity is drawing increasing interest in the wake of the widespread collapse in valuations in the second half of 2022. Globally, the survey showed 72% of investors intend to boost their allocations to private equity this year. More than half of all investors based in the U.S. and Canada plan to increase their allocations across asset classes this year, while in the Asia-Pacific region more than two-thirds of respondents plan to add to their private credit allocations. In EMEA, 71% plan to increase their private equity allocations.
Additionally, 43% of respondents say they plan to “substantially increase” their private equity holdings this year, although it remains to be seen if recent upheavals have changed that outlook, according to BlackRock.
“Private equity vintages that invest during downturns tend to outperform, according to our research,” said John Seeg, global co-head of Private Equity Partners at BlackRock Alternatives.
Rising interest rates have challenged traditional equity markets, yet have been a boon to private credit investors, especially in the arena of direct lending. The trend is global, according to BlackRock executives.
In private credit, for instance, 36% of U.S. and Canada respondents say they will “substantially increase” their allocations, while 68% of those in the Asia-Pacific region plan an increase.
“Private credit doesn’t just help amplify income and offer diversification,” said Phil Tseng, co-head of U.S. Private Credit at BlackRock Alternatives. “The greater ability to drive deal structures and covenants has led to stronger protections, lower defaults and higher recoveries compared with liquid markets.”
Drilling down by strategy, allocators are positive across the board and selected several areas of interest in the survey. The most popular credit strategies are infrastructure or real estate debt (51%); distressed (50%); European direct lending (48%); opportunistic (43%); venture debt (42%) and direct lending (40%).
Institutional investors may be sure about the strategies they wish to add to their investment portfolios, yet sourcing the right managers remains a concern.
In looking at new managers, the survey found that most investors (45%) said that a manager’s access to opportunities was of prime concern, followed by investment strategy (42%) and then expertise across asset classes and regions (40%).
