Investor optimism returns, with private markets exposure set to surge: Survey

Investors have expressed overwhelming confidence that their institutions’ investment performance has met or exceeded long-term return objectives, considerably more positively than the preceding two years, results from a just-released global investor survey have revealed.

An estimated 88% of surveyed investors expressed optimism over their chosen firm’s expected performance this year, notably above the “turbulent” 2022-2023 period where just 62% expressed such positive sentiment, the global survey by UK wealth sector consultancy bfinance reveals.

As well, more than half (53%) of surveyed investors with explicit liabilities say that their funding position (or equivalent) is on track for 2024 improvement; only 11% indicate a decline.

Managers in private market asset classes (private debt, infrastructure, and private equity) demonstrated the strongest satisfaction ratings in 2024, averaging out at 77.3% satisfaction. However, it was significantly down on 2022 figures, where 94.5% expressed positive sentiment.

Satisfaction ratings were significantly down for private equity (dropping 25 percentage points from 2022 ratings), equity risk overlays/hedges (dropping 27 points) and real estate (unlisted), which saw the biggest decline over the previous two years (down by 54 points).

Investors were more buoyant over fixed income (including EM debt, investment grade, and high yield) and emerging markets equities, which all saw notable jumps in satisfaction.

Private markets retain core role in portfolios

Private markets, overall, remain central to investment strategies, with 53% of surveyed investors planning to increase exposure over the next 18 months, while a further 30% will retain their current exposure.

Within the private markets fold, infrastructure and private debt are leading areas of interest, capturing 36% and 35% of new allocations, respectively, while just under one third (31%) are also looking to increase private equity exposure.

Equity portfolio diversification is a further priority for investors, with just 34% expecting the largest tech stocks to outperform broader indices in the coming year, the report found. Around 21% are looking to retreat from equities.

Notably, interest in secondaries is growing, with 37% of investors boosting exposure as they seek liquidity options within illiquid asset classes.

The survey identified is no discernible shift from active public equity investing towards passive, which was key trend of the post-GFC decade.

However, satisfaction with private equity managers has dropped significantly, from 94% in 2022 to 69% in 2024, suggesting increased scrutiny of general partners.

Fixed income strategies are gaining momentum, particularly investment-grade bonds, with 22% of investors boosting allocations; however, at least one in five (20%) have expressed their intention to decrease exposure.

In real estate, 62% of investors anticipate a moderate (59%) or substantial (3%) recovery in core real estate over the coming 12 months, following severe dislocation.

Resilience a key priority

Three quarters (75%) of investors of investors expressed their want to increase portfolio resilience, with a key priority to manage risk.

However, priorities for achieving resiliency differ: 23% say the most important area to improve is ‘resilience to a slow/prolonged drawdown in risk assets’; many, though, believe that a ‘sudden drawdown in risk assets’ (19%) or a ‘reduction in liquidity’ (19%) represent higher priorities.

Among the key areas of concern were geopolitical unrest (54%), prolonged downturns in risk assets (23%), and liquidity risks (19%).

Currently, just over one-fifth (22%) use equity overlays, with this figure set to rise to one-third.

A notable portion (31%) expressed “high concern” over a potential equity market correction threatening investment objectives.

Emerging opportunities

Bfinance identified artificial intelligence as a compelling thematic opportunity for investors, with 40% of those surveyed viewing it as a strong investment theme.

“However, caution prevails, with a predicted market rotation away from large tech stocks.

“This reflects a growing focus on mitigating tech-related concentration risks through diversified equity strategies and broader AI investments.”

While crypto attracted considerable interest with the forthcoming Trump presidency, the survey found adoption of digital assets and cryptocurrencies low, with only 9% investing in them, rising marginally from 2022, where the figure was 8%. At the time, 21% were expected to have exposure within five years.

Finally, adoption of impact investing, while growing, remains gradual.

Currently, 27% of investors are engaged in impact strategies, with a further 26% planning to enter this space.

Around a quarter (24%) of investors said they would increase exposure to impact strategies.

Climate transition remains a significant theme, with 40% of respondents identifying it as a strong investment opportunity. Biodiversity-focused assets are “poised for growth”, Bfinance, said with a projected 200% increase as investors explore nature-based solutions.

Commenting on the results of the report Kathryn Saklatvala, bfinance’s head of investment content said increasing economic and geopolitical uncertainties had pushed resilience to the “centre stage” for institutional investors.

“The focus on managing risks like geopolitical unrest, liquidity challenges, and prolonged market downturns underscores the critical need for robust strategies.

“From equity overlays to private markets and fixed income, we’re seeing investors actively recalibrate portfolios to navigate these challenges, balancing caution with the pursuit of opportunity in areas such as impact investing, infrastructure, and emerging technologies like AI.”

bfinance’s biennial global asset owner survey took views from 300 senior investors across 39 countries, including Australia, with a combined AuM of more than US$7 trillion.