Most Institutional Investors Are Sticking to Their Private Market Allocations During the Pandemic

Institutional investors are, for the most part, doing little in the way of dynamic asset allocation with their private market holdings in today’s environment, according to a new survey by Eaton Partners, a placement agent and fund advisory firm.

The majority, or 64%, of the 107 “top institutional investors” canvassed by Eaton said the market disruption will have no effect on their private market asset allocations, so they’ll largely stick to the script. Fifteen percent of respondents said they will increase their allocation to private markets and 21% are mitigating their allocations.

“While we do see LPs [limited partners] committing to GPs already in the process of underwriting, we also expect there will likely be a decrease in overall fundraising activity over the coming months,” noted Jeff Eaton, partner at Eaton Partners. “Private capital fundraising activity typically has lagged the public markets by two-quarters as denominator effect impacts and updated fund valuations take hold.”

There could be some increased appetite for private equity fund managers with a 2018-2019 vintage who are looking to deploy capital. Once the markets settle down from the current volatility, vintage funds will be ideally placed to acquire portfolio companies at the bottom of the pricing curve.

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On the short end of the stick are funds with a vintage year between 2012 and 2017, which are looking to divest their assets. About 60% of Eaton’s survey respondents expressed concern over how many private equity-backed companies will be able to receive financial support from the federal government’s stimulus packages.

These concerns may or may have not contributed to an apparent decline in interest in the sector. Eaton Partners found that the percentage of respondents who found private equity to be the most appealing alternative asset class fell 13 percentage points, from 52% in mid-March to 39% today.

Infrastructure took the lead with the most promise for diversification potential, grabbing the highest allocation of respondents (33%) who said they believe the asset class offers the strongest uncorrelated returns to public equity markets.