Asian institutional players target higher private markets allocations
Four in five institutional investors in Asia Pacific plan to increase their allocations to private markets in the next five years despite some facing near-term denominator effect challenges because of declines in public markets, according to a survey by asset manager Nuveen.
Insurers are more bullish on the asset class than most others, with four in five survey respondents planning to ramp up their exposure. For all investors across the region, private equity and infrastructure are the most popular areas within alternatives, followed by real estate and private credit.
The survey noted that infrastructure was the top pick for inflation-risk mitigation and infrastructure debt was a popular option among those looking to put more into credit. Infrastructure was also the go-to asset class for climate risk strategies.
“Investors are turning to infrastructure to help protect portfolios from inflation among other critical needs, such as increasing yield and mitigating climate risk,” said Mike Perry, head of the global client group at Nuveen, an impact-oriented unit under Teachers Insurance & Annuity Association of America (TIAA). “Infrastructure’s ability to play multiple roles is a key driver of increased allocations.”
The survey involved 800 institutional investors, each responsible for at least USD 500m in assets, across North America, Europe, the Middle East, and Asia Pacific. The survey was conducted in October and November of 2022 – which means it predates the most recent turbulence, yet it still offers a snapshot of investors figuring out how to respond to profound market changes.
Questioned about overall strategy, 59% of investors globally said they are either “actively rethinking,” “redefining and reallocating,” or “setting the reset button” on their portfolios. Nearly half are reformulating how they calculate capital market assumptions, 38% are making significant tactical allocation changes, and 27% are making foundational changes to their strategic asset allocation.
In Asia Pacific, 67% of investors agreed that the current investment environment is like nothing they have ever witnessed, with 77% saying that the influence of geopolitics on investment strategies is more significant now than at any period over the last 30 years.
In addition to dialling up inflation risk mitigation, allocating more to private markets, and increasing portfolio liquidity, climate strategy was identified as a priority for investors in Asia Pacific. More than three-quarters consider environmental and social factors when making decisions – slightly higher than the global total – and two-thirds expect impact strategies to become more important.
On impact strategies specifically, 45% of investors globally expect the same returns they generate from comparable traditional investments; 23% do not and 32% are neutral. The most popular areas for impact investing were energy innovation and infrastructure projects.
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