Private markets, in particular those for digital infrastructure investments, continue to appeal to European institutional investors, according to a global survey among 480 institutional investors presented on Tuesday by State Street. The survey also shows that European investors are a bit more reluctant than others to invest in private equity.
The Boston-headquartered firm said its survey found that, similar to the global trend (68 percent), that 69 percent of the respondents in Europe plan to continue their allocation to private markets in line with current targets, despite acknowledging that interest rate rises reduce the attractiveness of the highly leveraged asset class.
Within private markets, private equity remains the most attractive asset class, with 57 percent of institutional investors in Europe anticipating making it their largest allocation over the next two to three years, which is lower than global investors (63 percent). Infrastructure is more of a focus for European institutional investors (56 percent), compared with investors in the US (38 percent), APAC (44 percent) and Latin America (43 percent).
Tailwinds gone
“Our survey finds that European institutional investors show a strong degree of confidence in private markets even though the tailwinds of the last decade may be gone,” said Riccardo Lamanna, Country Head Luxembourg at State Street. ”Moreover, a strong majority believe that tougher times will create opportunities to buy assets at a discount.”
The poll was conducted among traditional asset managers, private market managers, insurance companies and asset owners, across North America, Latin America, Europe and Asia Pacific.
Manual processes and outdated systems
State Street’s survey found that more than half of institutions globally report wasting resources due to manual processes and outdated systems. Maximising the potential of data to make more effective decisions is the greatest focus for institutional investors in Europe and worldwide, although only 38 percent of global investors think this area is well developed in their organisations, it noted. The percentage is even lower in Europe (34 percent).
With technology growing at speed, over two-thirds of European investors will choose to migrate to cloud-based data storage and analysis to improve their private market operations. Their second choice is investing in robotics / automation (38 percent), which has more prominence than in the US (12 percent).
‘Private markets better placed for ESG impact’
While 46 percent of European respondents agreed that private markets provide a better opportunity than public assets to make an ESG impact, only 37 percent said their approaches to quantifying ESG risk exposures are well developed.
“ESG continues to be a big focus for institutional investors in Europe,” said Lamanna. “As they think they can create bigger ESG impact within private markets, 66 percent of European respondents anticipate ESG will be one of the more scrutinised areas of private markets transparency. It is critical for institutional investors to have a multi-asset class risk analytics platform to gain a holistic view of the ESG drivers that impact their overall portfolio in both private and public markets.”
Related articles on Investment Officer Luxembourg:
- State Street Luxembourg embraces transformation
- Luxembourg confident it can weather any turmoil in 2023
- State Street survey finds return of investor optimism