39% of large asset owners say they will increase their allocation to private credit, according to Mercer’s 2024 Large Asset Owner Barometer.
The study, which convenes the views of 61 large asset owners (LAOs)* from 16 countries, with over $2 trillion in assets under ownership, shares important insights and key learnings based on current positioning, plans and principal concerns.
Mercer says that 90% of LAOs have at least some allocation to alternative asset classes, with the most popular including real estate (82%), private equity (78%), infrastructure (75%), private debt (71%) and hedge funds (55%).
Of the small number of respondents who said they did not have an allocation to private markets, complexity around the asset class, not aligning with their liquidity requirements and a lack of confidence that illiquid assets can be fairly valued were the most common reasons cited.
Commenting on the findings, Albane Poulin, Head of Private Credit at Gravis Capital Management, said: “To alleviate the concerns expressed, I would point out that while private market assets are inherently less liquid than publicly-traded assets, investors with an investment time horizon of 5-10 years do not actually need daily pricing or liquidity – it’s more a comfort than a necessity. Evergreen funds in private credit can offer decent quarterly redemptions, so can work for most investors. What’s more, higher liquidity often goes hand in hand with higher volatility and this can lead to lower returns.
“When it comes to concerns about fair valuation, I would say that this is exactly why having an independent valuation from a third party is key to a successful product.”
Anthony Curl, Chief Investment Officer at Gravis Capital Management, added: “Whilst some large investors may have valid reasons only to invest in the public markets, the majority see value in private markets and are looking to increase that exposure, as the survey suggests.
“It is true that these types of assets are less liquid, but we believe investors can earn an attractive illiquidity / complexity premium to compensate. Sectors such as real asset-backed credit offer particularly compelling risk-adjusted returns at present.”
*For the purposes of this report, Large Asset Owners are defined as having approximately $5 billion or more in assets under ownership and include pension funds, insurers, not for profits (endowments, foundations, charities), wealth managers and sovereign wealth funds.
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