Survey findings forecast allocation to private markets will increase for the near-term, but asset owners require improved data standards and reporting

The demand for private markets investments by asset owners and managers is expected to rise in the next three to five years as investors seek higher yields and greater diversification, according to a recent survey State Street conducted with 170 private market asset managers and asset owners.

According to the survey results, asset managers expect that their median allocation to private market assets will rise from 30% to 35%, while asset owners believe it will increase from 22% to 28%. Respondents identified the most significant drivers of this momentum to be diversification from listed markets (59% of asset managers and 67% of asset owners) and better opportunities for return generation (52% of asset managers and 52% of asset owners). Forty-percent of asset managers also identify private markets as an attractive and/or stable source of yield.

However, there are significant barriers to investing in private markets. 64% of respondents are concerned about weak standards of accounting and audit controls, 60% about high management fees relative to public markets and 58% about lack of uniform data standards. To maximize the next stage of growth in private markets and meet rising investor expectations, asset managers will have to improve their data management and reporting processes and adopt more sophisticated technologies.

Access to data

The survey found that data quality and standardization is a key barrier to increasing private markets allocations. Sixty-eight of asset owners noted a significant opportunity cost to working with private markets data and want a higher quality data provisioning service. Fifty-eight percent also say data management and data quality validation is now part of the due diligence process for manager selection.

Asset owners require greater use of technology to improve the quality and timeliness of information from asset managers, and they increasingly want an accurate, top-down view of their portfolio across all asset classes. To meet this demand and remain competitive, managers will need to invest in a variety of data tools and technologies.

“Having a single, unified data management platform to manage data across the front, middle and back offices, is no longer a ‘nice to have,” said Paul Fleming, global head of State Street's Global Alternatives Segment. “It will be what differentiates the trailblazers from their competition in private markets for years to come.”

ESG Remains a Priority

Survey findings also demonstrated that asset owners are seeking private assets that make a “positive, measurable contribution to sustainability or other ESG criteria,” with 61% of asset owners expressing interest in more sustainable investment options.

Results showed a significant regional variation regarding views on ESG themes. The survey found that only 13% of asset owners in North America cited ESG investing opportunities as a top driver of future growth in private markets investing, compared with 42% for Europe-based investors. For asset managers, the figures were 21% and 25%, respectively.

Overall, respondents reported that the lack of ESG data standards are hindering progress. To address difficulties in comparing potential investments and assess their sustainability credentials, nearly half (49%) of managers say they will develop or acquire ESG data tools for reporting and analysis within the next two years.

Future of Private Markets Investments

The survey found that integration is a crucial element as managers address the data and operations concerns around private markets. Investors require providers that have sophisticated technology to enable accurate reporting of performance, valuations and ESG-related data. Asset managers are willing to explore new data tools but are hampered by costs and concerns that wholesale changes will disrupt day-to-day client services.

“It’s interesting to see that respondents remain largely optimistic about the future of private markets investments, and private market managers expect to see greater diversity of investors turning to the asset class in the near future; however investors in both public and private markets are realizing the risk and inefficiencies created across their bespoke front, middle, and back office solutions” said John Plansky, head of State Street Alpha. “With the right technology and partners in place, asset managers will be better equipped to overcome the challenges of private markets and maximize value in the market boom still to come.”

To read the full survey results, please click here.

About State Street Corporation

State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $43.3 trillion in assets under custody and/or administration and $3.9 trillion* in assets under management as of September 30, 2021, State Street operates globally in more than 100 geographic markets and employs approximately 39,000 worldwide. For more information, visit State Street's website at www.statestreet.com.

*Assets under management as of September 30, 2021 includes approximately $60 billion of assets with respect to SPDR® products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors are affiliated.

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