INSTITUTIONAL investors have become slightly less enthusiastic about private investments, based on a survey conducted by investment manager Nuveen from October to November last year.

Among the 800 investors surveyed across 27 countries, 55 per cent are planning to increase their allocations to private markets over the next five years. In the previous edition of the survey, the proportion that planned to increase their allocations was 72 per cent.

Private markets have gained popularity as a diversification tool in recent years. Interest is growing fastest among high-net-worth individuals, after institutional investors reaped the benefits of private investments as public markets floundered.

The California Public Employees’ Retirement System, the biggest pension plan in the United States, announced on Tuesday (Mar 19) that it would increase its private markets allocation from 33 to 40 per cent in order to “maximise returns from the highest-performing asset classes”.

Nuveen’s survey showed investors in North America were most keen on the private asset class, with 60 per cent planning an increase. The proportions were 49 per cent in the Europe, Middle East and Africa (Emea) regions, and 59 per cent in the Asia-Pacific.

The EQuilibrium 2024 Global Institutional Investor Survey, the results of which were released on Thursday, is Nuveen’s fourth. It covers corporate and government pensions, insurers, endowments and foundations, superannuation funds, sovereign wealth funds, and central banks.

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Investment decision-makers surveyed each represented organisations with at least US$500 million in assets, and the 800 surveyed represented US$18 trillion of assets.

These investors reflected a higher-than-normal level of uncertainty about four key market drivers: geopolitics, capital markets, economic growth, and monetary and fiscal policy.

“Over the last 10 years, everything was so well-behaved. Inflation was low, growth was neither too hot nor too weak, there were no concerns around China, and there was no such thing as net zero,” said one chief investment officer at a UK pension fund in response to the survey.

“Now, all those things have been turned on their head. Everything that was looking good in terms of consideration now has a question mark. So it makes our life quite difficult, in terms of how we bring it all together.”

To improve portfolio resiliency, 22 per cent of investors said that they are diversifying into more asset classes.

The top asset class for diversification was fixed income and debt instruments.

Investment-grade fixed income was the most-favoured investment within the fixed-income segment, with 48 per cent saying that they would increase their allocations there over the next two years.

Private fixed income – including direct lending, private securitised debt and private real estate – came in second, with 38 per cent planning increased allocations there.

Drilling down further, the three most-favoured private fixed-income allocations were private investment-grade corporate credit, private infrastructure debt, and private real estate debt.

Private credit and private equity were also the top choices for allocation across alternative asset classes: 41 per cent of investors said they planned to increase their allocations to both.

Andrew Kleinig, managing director and head of Australia at Nuveen, said that there is an “increased amount of value creation” occurring in private markets relative to public markets and to previous decades.

Certain sub-asset classes of private markets also provide greater income stability, he added, which would be important given the continuing desire for income.