Average private markets allocations among global institutional investors have risen to a record 12.5 per cent of overall portfolios, according to Aviva Investors’ latest Private Markets Study.

The figure marked the highest level recorded since the study began eight years ago, reflecting the growing role of private markets in long-term institutional portfolios.

The research surveyed 500 institutional investors across the UK and Europe, North America and Asia-Pacific, collectively representing $6.5 trillion in assets under management.

North American investors reported the highest average allocation to private markets, at 14.4 per cent, compared with 12.1 per cent in Europe and 11.9 per cent in Asia-Pacific.

North America also saw the largest year-on-year increase, with allocations rising by almost two percentage points.

Looking ahead, appetite for private markets remains strong.

The study found that 88 per cent of global institutional investors planned either to increase (49 per cent) or maintain (39 per cent) their private markets exposure over the next two years.

Meanwhile, 76 per cent expected private markets to outperform public markets over the next five years, up from 73 per cent in last year’s study.

Diversification remained the primary driver of allocations, cited by 76 per cent of respondents.

However, the illiquidity premium had become an increasingly important factor, with 55 per cent now identifying it as a key reason for investing in private markets, up from just 25 per cent in 2023.

Aviva Investors head of private markets strategy and research, David Hedalen, argued the growing focus on illiquidity reflected greater investor confidence driven by improved data and analysis.

“Investors in private markets are increasingly leveraging better data to calibrate models and make more informed decisions, and illiquidity premia form part of this conversation,” he said.

“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.”

The study also highlighted the growing role of defined contribution (DC) schemes.

With DC now representing 59 per cent of total pension assets across the seven largest pensions markets, 72 per cent of DC funds globally agreed that adding private markets to accumulation portfolios could deliver better outcomes for members.

Real estate, private debt, and private equity were the most common private-market assets included in DC default funds.

Within private debt, asset-backed lending and opportunistic or distressed debt were identified as the most attractive sub-asset classes over the next two years.

Hedalen noted the evolution of private credit was a key trend in the latest data.

“This is no longer a substitute for bank lending, but instead is a specialised and differentiated asset class which has become increasingly sophisticated,” he said, adding that multi-sector private credit strategies could help investors navigate shifting relative value opportunities.

In terms of asset class preferences, private equity and infrastructure equity were seen as offering the strongest risk-adjusted returns over the next five years, cited by 51 per cent and 46 per cent of investors respectively.

Real estate equity remained the largest private markets allocation globally, accounting for 22 per cent of total private markets exposure, although private equity and private corporate debt saw the biggest increases in allocations over the past year.

Hedalen observed that real estate’s continued prominence reflected its scale and familiarity, even as investors make more selective adjustments.

“With the market having entered a new cycle following its correction in 2024, this likely reflects a more considered rebalancing in response to relative value opportunities and structural considerations, rather than a wholesale reassessment of the sector,” he added.

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