Apac institutional investors maintain conviction on private markets: Aviva Investors

[SINGAPORE] Institutional investors in Asia-Pacific (Apac) have the strongest conviction on private markets, with only 9 per cent planning to reduce allocation.

This is the lowest number among the three regions of North America, Europe and Apac, according to a report by Aviva Investors, the global asset management arm of insurer Aviva.

The majority of institutional investors in Apac, or 49 per cent, are expecting to increase their allocations to private markets.

This follows the trend across the three regions, as 88 per cent of institutional investors plan to increase their allocations to private markets.

Apac also has showed the highest enthusiasm for the illiquidity premium of private market assets at 58 per cent. This likely reflects the relative youth of private market portfolios in the reion, along with confidence in long-term fundamentals.

Across the three regions, 55 per cent of institutional investors cited illiquidity premium as a reason for allocating to private markets.

Institutional investors are utilising better data to calibrate models and make more informed decisions, with illiquidity premium being part of the conversation, said David Hedalen, head of private markets strategy and research at Aviva Investors.

“Becoming more confident in this reward for having increased illiquidity in portfolios will drive investor confidence that these assets can generate improved returns over the long run,” he added.

Over three quarters, or 76 per cent, of institutional investors across the three regions cited diversification of risks and return as the primary reason.

Private equity and infrastructure, at 51 per cent and 46 per cent, respectively, are asset classes institutional investors expect to deliver the strongest risk-adjusted returns over the next five years.

In Apac, there are increased concerns around volatility, with 45 per cent of institutional investors here citing it as a concern in 2024 compared with 25 per cent in 2025. Valuations and sourcing opportunities are cited as key challenges, reflecting competitive markets.

Sustainability considerations are more pragmatic than ideological, with almost half of Apac investors factoring sustainability into investment decisions.

Just 6 per cent of institutional investors did not consider it while making investment decisions. Forty seven per cent said it was a limited factor and 38 per cent cited it as a significant factor. Only 6 per cent of Apac institutional investors said it was not a factor, the lowest among the three regions.

Private credit continues to rise, with 32 per cent of institutional investors intending to increase allocations to this asset class. Within private debt, institutional investors view asset-backed lending at 49 per cent and opportunistic and distressed debt at 48 per cent as the sub-asset classes with the most attractive risk-adjusted returns over the next two years.

“Ultimately, we see a strong case for strategies such as multi-sector private credit for this reason, which can pivot across sectors and capital structures as relative value shifts,” said Hedalen.