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European fund selectors turn to private markets as inflation rises

Private MarketsAlmost three in 10 European financial organisations are turning to private markets, a new study from CoreData Research shows.

Of 130 European fund selectors, 27% said their organisation is moving its investment strategy from public markets to private markets on the back of a belief that the latter offer stronger return prospects.

Half say low bond yields and rising inflation are encouraging investors to seek out returns in private debt markets. Moreover, almost one in three respondents believe private markets will reliably outperform public markets over the near future.

The research found the desire to develop sustainable strategies is also driving fund selectors to private markets – 38% believe private market investing will play a pivotal role in reaching net-zero carbon emissions, with more than half saying they expect to increase investment in renewable energy infrastructure over the coming years.

More than half see opportunities within real assets on the back of the energy transition.

However, concerns that the asset class could become a bandwagon and face tighter regulation deterring some investors.

Forty-four percent believe it is becoming more challenging to allocate investments within the space owing to a more crowded market. In addition, one in three anticipate tighter regulation for private markets, lessening their appeal.

Andrew Inwood, founder and principal of CoreData, said the findings show how “private markets are fast becoming central to investment strategies”.

“While private markets offer the prospect of superior, uncorrelated returns, they also present a broader opportunity set by tapping into structural trends at the forefront of economic and sustainable change,” he said.

Regarding selecting an asset manager, 79% of fund selectors say internal expertise is vital, alongside adequate resources.

There is also a tendency for fund selectors favour large asset managers – 40% of study respondents compared to 17% that do not have that preference.

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