Where global professional investors will allocate their money
Insurance companies favour global equities, wealth managers and financial advisors dial up private markets, and pension funds are set to ramp up both private markets and equities
News Release, 26 November 2024
Global professional investors such as insurance companies, pension funds, wealth managers and financial advisors, are set to shift their allocation to equities and private markets, according to this year’s flagship Schroders Global Investor Insights Survey[1]. This landmark survey encompasses almost 3,000 professional investors and some $74.5 trillion in assets across the full spectrum of institutions[2].
Insurance companies turn to global equities and prioritise return on investments
Insurance companies are anticipating a significant shift towards increased global allocations within their equity portfolios. More than half of insurance companies expect to increase their allocations to global equity mandates within the next two years. The respondents are also predicting greater exposures to active equities and looking to their equity portfolios to access the themes of deglobalisation and disruptive technology.
David White, Global Head of Insurance, Schroders, said: “There is a growing consensus that the dominance of US equities can be accessed more effectively by investing in a global equity solution. This reduces the need for Investment Committees to actively manage changes in regional and country allocations, thereby presenting opportunities for improvements in the efficiency of governance.”
The survey also found that 61% of insurers are prioritising their return on investments ahead of return over regulatory capital when setting investment strategy. A further 46% of insurers are turning to bespoke solutions to increase their private markets exposure. Indeed, a significant 95% of insurers are expecting to have a private markets allocation in two years’ time. More than a third (37%) also identify private credit as the biggest fixed income investment opportunity, closely followed by investment grade corporate credit (35%).
Ingo Heinen, Global Head of Business Development and Product, Schroders Capital, said: “A more supportive regulatory landscape means more insurance companies across the world have a greater opportunity to take advantage of private markets. For insurance companies, private markets provide unique opportunities for liability matching, particularly in an environment of volatility and inflationary pressures.”
Furthermore, when it comes to emerging technologies, in particular artificial intelligence (AI), insurance companies are leading the way amongst institutional investors.
Wealth managers and financial advisers dial up private markets allocations in response to shifting market dynamics
More than half of advisers and wealth managers are currently investing in private markets, with a further 20% expecting to do so in the next two years. Private equity (53%), multi-private asset solutions (47%) and renewable infrastructure equity (46%) are the three private market asset classes that advisers and wealth managers anticipate their clients to increase their allocations to over the next 1-2 years.
Two-thirds of wealth manager and financial adviser respondents highlight that the potential for higher returns than public markets is the most important benefit for investing in private markets for their clients. This was closely followed by achieving diversification through differentiated drivers of return (62%).
On average, most investor allocations to private markets are either 5%-10% or 1%-5% of portfolio exposures.
Carla Bergareche, Global Head of Wealth, Client Group at Schroders, said: “Whilst many wealth managers and financial advisers are already investing in private markets on behalf of clients, the size of allocations is currently far lower than the 20% or more seen in family office and institutional portfolios. This gap presents a substantial opportunity to deepen client engagement with private markets. We therefore expect private markets to continue to play a growing role in wealth portfolios as investors become increasingly aware of the potential for delivering robust and diversified returns.”
Just over half of wealth managers and advisers surveyed said they were accessing private markets opportunities via listed funds[3], closely followed by semi-liquid/open-ended evergreen funds at 51%.
Despite these opportunities, the potential lack of liquidity is cited as the primary challenge when discussing private markets with clients.
Unsurprisingly, 49% of respondents stated that greater education for clients would further support demand, followed by more suitable product structures (42%) and lower investment minimums (42%).
Tim Boole, Head of Product Management, Private Equity, Schroders Capital, said: "There is absolutely no question that private wealth is going to play a very significant role in private markets going forward. The options for wealth managers and advisers to access private markets have so far been limited relative to their institutional counterparts, which is why despite intentions, we’re still seeing low allocations.
“However, the emergence of new vehicles, such as semi-liquid funds, are broadening available access points and have been a significant step forward in offering flexibility for investors to meet their investment objectives using private markets. It is therefore unsurprising to see these structures being favoured by this client segment.”
Additionally, wealth transfer was stated as a priority for 59% of wealth managers and advisers globally. In EMEA engagement is lower, with 43% of advisers engaging clients on this topic, largely due to cultural sensitivities.
Pension funds globally set to ramp up private markets and global equity allocations
Pension funds globally are looking to ramp up their allocations to private markets and global equities, according to Schroders’ flagship Global Investor Insights Survey. Over 94% of pension fund respondents are either already invested or planning to invest in private markets, with 27% intending to do so over the coming two years.
Pension funds are particularly focused on private debt (51%), private equity (49%), infrastructure debt (41%) and renewable infrastructure (38%). The energy transition and decarbonisation, and technological revolution are the key themes driving pension funds’ private markets demand.
Some 93% of pension funds already invest or are planning to allocate to the energy transition as a theme, with over a third expecting to make new investments in this area over the next 1-2 years.
Demand for global equities is also similarly strong, with 55% of funds expanding allocations to capture high-growth markets and sectors. This trend underscores a strategic shift towards global active management.
Almost three-quarters (70%) of global pension funds agreed that active managers are better suited to deliver specialist investment approaches, i.e. a specific focus on sectors, regions, or investment styles. This aligns with the view that active managers should have the expertise to outperform passive in the current environment, as affirmed by 59% of respondents.
Additionally, alternative fixed income strategies are popular. Whilst there is a global preference for private debt, regional preferences differ globally. In Asia Pacific, Asset-Backed Securities (36%) gain more attention, in EMEA ex-UK pension funds continue to favour sustainable bonds (27%) whereas across the UK and North America, pension funds see opportunities in emerging market debt strategies (27%).
Lesley-Ann Morgan, Global Head of Pensions and Retirements, Schroders, said: “The survey highlights a pivotal shift in pension fund investment strategies, driven by the desire to access high-growth markets and sectors, alongside a need for simplicity and adaptability. In an economic landscape marked by persistent inflation and volatility, active global equities provide opportunities to capture growth across diverse regions and sectors, with the flexibility to dynamically adjust allocations in response to changing market conditions. This trend underscores a strategic shift towards global active management, as pension funds recognise the potential of skilled managers to add alpha through the freedom to allocate across markets.
“For pension funds, fixed income remains a critical pillar. Regional preferences highlight not only local economic factors but also differing regulatory landscapes and investor maturity levels. By understanding these nuances, we can better align portfolios with both global opportunities and regional specifics, meeting our clients’ evolving needs effectively.”
Georg Wunderlin, CEO, Schroders Capital, said: Private markets are vital for pension funds, offering crucial means to diversify, enhancing portfolio resilience. Sectors like private equity and renewable infrastructure are particularly well-positioned for growth, aligning with key trends such as the energy transition and technological innovation. As the interest rate environment evolves, the need for skilled managers to source and manage these assets intensifies. At Schroders Capital, we are dedicated to helping pension funds unlock the full potential of private markets through tailored solutions that meet return and sustainability objectives.
Further reading
The full Schroders’ Global Investor Insights Survey can be found here.
1 The Schroders Global Investor Insights Survey analyses the investment perspectives of global financial professionals on a range of topics across macro themes, sustainability and public and private markets. The 2,830 respondents represent a spectrum of institutions, including pension funds, insurance companies, family offices endowments and foundations, official institutions, gatekeepers and wealth and financial advisers. The respondent universe is collectively responsible for US$74.5 trillion in assets.
The research was carried out by CoreData Research via an extensive global survey during June-July 2024. The 2,830 respondents were spilt as follows: 591 from North America, 990 from Europe, Middle East and Africa, 284 from the United Kingdom, 795 in Asia Pacific and 170 from Central and South America. Respondents are from 33 different locations.
Any opinions expressed reflect our results as of July 2024. They are not intended to be a forecast or guarantee of future results. Throughout the report, we complement our global findings with regional results and insights from Schroders experts.
2 All - (2,830): Institutional - (815), Gatekeepers - (260), Financial advisers (1,755)
3 We believe listed funds include REITs or listed private equity funds