45% of investors plan to shift more capital into private equity in the next 12 months

Institutional investors plan to allocate a greater proportion of capital to private markets in 2021, according to findings from Private Equity International’s annual study of investor sentiment towards alternative asset classes.

Now in its ninth year, the Perspectives 2021 study provides a granular view of investors’ asset allocation, propensity to invest, and performance predictions.

Findings from the study reveal 45 percent of investors are looking to shift more capital into private equity over the next 12 months. For infrastructure, 36 percent of investors will commit more capital to the asset class, while 25 percent will do the same for private real estate. Over the next five years, investors will increase the proportion of their portfolio dedicated to alternatives by over seven percent. For infrastructure, 36 percent of investors will commit more capital to the asset class, whilst a more subdued 25 percent will do the same for private real estate.

Isobel Markham, Senior Editor, Americas, said: “The resilience of private equity portfolios in the face of such a turbulent year is likely to be what has led to investors’ positive evaluation of the private equity market in this year’s study. Despite the economic challenges in 2020, one thing is clear: investors are putting their trust in the asset class as a steady pair of hands when all else is uncertain.”

Institutional Investors have embraced technology to access private market opportunities and look set to work virtually into 2021.

Nicole Douglas, Head of Investor Research, said: “The impact of the coronavirus pandemic is notable across the private markets landscape, as investors embrace digital capabilities to conduct business on a virtual basis. Over 90% of investors revealed they would conduct initial meetings with fund managers virtually, with two-thirds willing to conduct fund due diligence on an entirely virtual basis. And with two-thirds (68%) of investors anticipating future Covid-19 outbreaks to have the greatest impact on performance in 2021, managers will do well to adapt when fostering relationships with investors.”

Key findings from the Perspectives 2021 study

• 41% of investors believe their managers are taking the risks of climate change seriously enough in their investment policies and practices.
• Just 12% of investors are willing to relax their ESG policies as it relates to private markets fund investments in light of Covid-19.
• Investors cite a recession in core markets (83%), future Covid-19 outbreaks (68%), and extreme market valuations (51%) as the top factors that will have the greatest impact on performance in 2021.
• 72% of private equity investors are confident that their managers’ deals have been structured sensibly enough to withstand a downturn.
• 39% of investors anticipate their private equity portfolios will exceed benchmarks in 2021.