A majority of European fund buyers believe clients are underinvested in private market strategies, leading a drive for improved accessibility and fee structure for the sector, according to the PGIM Investments Gatekeeper Pulse study.
Across Europe, 64% of fund buyers claimed that their clients were underinvested in private markets. Matt Schafer, head of international distribution at PGIM Investments, believes the market will see increasing demand in coming years.
“While it took time for investors to fully embrace the intricacies of investing in emerging market equity and debt, it would be hard to argue that a portfolio is adequately diversified today without exposure to the developing world. In the coming years, it is realistic for private markets to be thought of the same way,” Schafer said.
The study, which included 210 fund buyers across Europe and Asia, also found a positive outlook on public and private fixed income. Half of those interviewed anticipated an increased return for private fixed income, while 59% forecasted an increase for public fixed income.
The expectations have led 54% towards a planned increase in investment grade corporates and 47% towards government bonds.
“Cash rates may still be high in many places around the world, but the certainty around expected cash returns logically declines over time,” Shafer said.
“In contrast, given the long durations and longer maturities of bonds, fixed income may provide a higher degree of confidence for a targeted level of return. In fact, cash may be the riskier option over the long term, particularly as many central banks have already begun to cut rates.”
While anticipation for fixed income runs high, fund buyers have a shakier future vision for equities, with only 10% expecting an increase over a decrease across private and public markets. Fund selectors pointed to political volatility as a potential drag down. However, 64% see a rally for small and mid-cap performance.
“Even though rate cuts would provide a tailwind for equity markets, fundamentals are the true driver of long-term equity performance,” Schafer said.
“The macro backdrop has dominated the investment narrative for some time, but we expect fundamentals to come back into focus and companies must demonstrate durable earnings growth and robust demand to perform well from here. This aligns with the corporate profit outlook, where growth stocks are expected to generate stronger earnings growth relative to value-oriented peers, which rely more heavily on the business cycle.”
