One third of LPs plan to increase PE allocation within a year – survey

The study analysed responses from 750 institutional investors from North America (27%), Europe (37%), Latin America (27%) and the Asia-Pacific region (9%), including corporate and public pension plans, insurance companies, official institutions, private banks, endowments and foundations. The survey, which has been conducted annually since 2017, took place in February and March 2021.

Breaking down the institutional investors who intended to increase their PE allocation in terms of geography, the survey found that 42% of North American LPs expected to increase their PE commitments, alongside 38% of Asia-Pacific LPs, 32% of European LPs, and 39% of Latin American LPs.

Of the nine private asset classes covered in the report, private equity was the most popular choice for increased allocations, followed by infrastructure (32%), impact investing (29%) and private debt (corporate) (29%).

Overall, 90% of the institutional investors surveyed planned to increase their allocation to one or more private asset classes within the following 12 months, with 80% stating that the need for diversification was a driving factor behind their decision to invest in the asset class.

Compared with Schroders' 2020 survey, more institutional investors plan to continue their diversification into alternatives and private assets, reducing their exposure to listed assets: 26% of respondents said they intended to do this in 2020, versus 47% in the 2021 survey.

The survey also looked at how the Covid-19 pandemic is likely to impact the way LPs invest in private markets. More than a third (37%) of respondents said the pandemic had led to an increase in the importance of ESG considerations. Meanwhile, one quarter of the investors surveyed said the pandemic had increased their willingness to invest with new managers without having met them face to face, while 21% said it had decreased their willingness to do this.

Participants were also asked to rate the importance of 11 factors when selecting a private market manager to work with. Track record was the most important factor, with 82% of investors citing this as important. Team stability (74%) and the quality and transparency of reporting (74%) were the second and third most important factors, while more than two thirds (68% each) cited risk management practices and fees and terms as important.

Whether a manager was a signatory to the UN's Principles for Responsible Investment (PRI) and the depth of a manager's ESG capabilities were cited as being important by 29% and 34% of respondents respectively, making them the least important of the factors surveyed. However, when looking at the geographies of the respondents, European LPs found these factors to be of greater importance than average: 47% rated ESG capabilities as important, while 44% cited PRI signatory status as important.

The most important ESG consideration cited by LPs was that the strategy should focus on assets with strong or improving sustainable practices, aligned with the "benefit all stakeholders" principle (54%). Half of those surveyed cited a manager's ability to report quantitively on the impact of their strategy, while 46% cited the integration of ESG considerations into the strategy, following a "do no harm" principal.

Looking at the challenges of investing in private assets, high fees (60%), lack of transparency and data (58%), and high valuations (47%) were the top factors cited by the institutional investors surveyed.

Schroders announced the rebranding of its private assets division under Schroders Capital in June 2021, as reported, with the intention of strengthen the visibility and the market position of its private asset offering, as well as providing more products for private investors.

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