- Investors tap seasoned asset managers for private debt and equity investments.
- Study of 250 allocators in EMEA representing $10tn AUM reveals preference for large private asset managers with local presence in many markets.
- Download the research here. What’s Your Alternative?
Institutional investors in Europe and the Middle East are significantly increasing their allocations to private market assets. New research from PGIM and Institutional Investor’s Custom Research Lab reveals a strong preference for partnering with large, multi-line asset managers that provide diverse capabilities and established local expertise across markets.
Over 75% of the 250 EMEA investors surveyed, collectively managing over $10 trillion in assets, plan to expand their investments in private alternatives within the next two years. These investors consistently favour comprehensive, scalable firms over niche boutique managers, recognizing the broader range of solutions and resources that larger asset managers deliver.
Institutional investors in EMEA say they are likely to prefer large, multi-line firms with broad offerings and a local presence in many markets (62%) compared to small boutique firms that specialize in one or more private asset classes (22%), according to the survey. The balance of the study participants (16%) expressed no preference.
Investor fondness for large, well-established managers may be driven by the rapid growth of some segments of the private alternatives asset class, including private credit. An exciting area of growth lies in firms’ access to sponsored deals. These arrangements allow institutions to invest in the debt of private-equity-backed companies, often targeting dynamic middle-market firms with annual revenues exceeding $100 million.
Nearly one-half of study participants (46%) said they were unlikely to take on non-sponsored private-credit investments, while only 8% of respondents were unlikely to invest in issuances under PE sponsorship. These sponsored offerings of middle market private credit are especially attractive to institutional investors thanks to the equity capital and watchful management oversight from private equity firms. More than 80% of the survey respondents are keen to consider investing in multi-asset solutions composed of several private alternative assets. Their enthusiasm stems from the growing availability and maturity of multi-asset alternative offerings provided through a single asset manager relationship.
Manager selection as a fulcrum of value
Asset manager selection is especially important when investing in private market assets due to the lack of market information, limited contemporaneous pricing data, and the complexity of sourcing, executing, and liquidating private market deals. Study participants offered a tepid assessment of their current managers’ performance in several dimensions:
- A majority of respondents (52%) said their current asset managers have underperformed in their ability to provide to liquidity on investments through the secondary market.
- Similarly, respondents are more likely to say their managers have underperformed rather than exceed expectations on key metrics such as speed of capital deployment and exit transactions. While most respondents (58%) said their managers’ speed in deploying capital has met their expectations, a substantial 29% of respondents said their managers have fallen short in this regard.
Queried on the attributes they focus on when evaluating prospective new asset managers, respondents are especially interested in the strength of the investment management team, their communications skills, and their understanding of their clients’ investment objectives and expectations. Nearly half of the respondents (48%) selected the tenure, continuity, and compensation structure of a prospective managers’ investment team as especially important in their due diligence (see figure below).
Investors choose asset managers based on investment teams, proactive communication, and understanding of client needs
Non-investment-performance factors that are especially important when evaluating new private market asset managers (percentage of respondents. n = 250)
A similar proportion say they look for managers’ ability to provide proactive notice and commentary during periods of market stress. Asset managers’ intimacy with clients – that is, their ability to understand institutions’ unique investment requirements and commitments – also garners strong support among investors as they assess prospective investment partners.
Investors also voice support for seeking managers that are able to provide unique access to private market investments, further confirming their interest in large, multi-line firms with the relationships to connect investors with deals sponsored by PE firms.
Find out more: Access the full research report.
This is the last of three articles on the use of private market alternative assets among investors in Europe and the Middle East. Earlier articles in this series focused on investors’ rationale for private market assets and the geopolitical and other risks that inform their decision making.