Pension Funds Will Increase Their Allocations to Private Assets and Asian Emerging Markets 

Western markets are reaching all-time highs, stock buybacks continue at a steady pace, and IPOs are becoming more irregular. This highlights the need for pension plans to find new growth drivers, according to a new report published by CREATE-Research and the European asset manager Amundi.The survey is based on responses from 157 pension plans worldwide, managing assets worth €1.97 trillion. The study sheds light on the areas pension funds are targeting for sustained returns over the next three years. In this new regime, the two underinvested asset classes offering the most attractive opportunities are private markets and Asian emerging markets (MEA).Currently, three-quarters (74%) of pension plans invest in private market assets, and just under two-thirds (62%) invest in MEA.According to Vincent Mortier, Group Chief Investment Officer at Amundi, “Private markets and Asian emerging markets have had to adapt to a new era with sharp interest rate hikes and a new geopolitical landscape. However, both continue to offer diversification, attractive returns, and are well-positioned to capitalize on the more predictable sources of value creation from secular megatrends. It’s encouraging to see new allocations to historically underinvested areas.”Private Markets’ Slower Growth Has Not Diminished Their AppealPrivate markets have faced scrutiny as the era of market-driven returns fueled by cheap money has ended, according to the Amundi survey. While returns in private markets are likely to be lower than in the recent past, their appeal remains strong, with 86% of respondents expecting to continue investing in them within three years.This increased interest is driven by the search for risk-adjusted returns in a low real-yield environment (72%), potential interest rate cuts (54%), more growth companies in private markets (53%), and the fact that fast-growing firms are staying private longer (51%).The survey indicates varying interest among respondents in different asset classes over the next three years. Private debt leads the list (55%), focusing on direct lending, real asset financing, and distressed debt. Key sectors include healthcare, real estate, renewable energy, carbon capture technology, and social infrastructure.The second preferred asset class is private equity (49%), specifically growth equity, followed by leveraged buyouts to a lesser extent. Infrastructure ranks third (40%), bolstered by policy measures such as the U.S. Inflation Reduction Act and the European Green New Deal. Real estate (38%) comes next, where narrowing price expectation gaps between buyers and sellers is improving valuations and creating attractive opportunities.Venture capital ranks last (28%), viewed as the riskiest option in the current private market environment.Private Assets Seen as Ideal for Capturing MegatrendsThe energy sector is undergoing a profound transformation, driven by four megatrends known as the “four Ds” (decarbonization, decoupling, digitaliza