Introduction
Institutional investors are shifting serious money into private markets, and we’re talking record-breaking levels here. Global private market allocations just hit £4.7 trillion ($6.5 trillion), representing 12.5% of total portfolio allocations. Nearly 90% of investors plan to either maintain or increase these allocations over the next two years. Why the rush? Better returns, portfolio diversification, and a growing appetite for the liquidity premium that comes with less liquid assets.
North America Leads the Private Markets Charge
North American investors aren’t messing about. They’ve allocated 14.4% of their portfolios to private markets—the highest average globally and representing the largest year-on-year increase across all regions from 12.5%. Europe follows closely at 12.1%, with Asia-Pacific trailing slightly at 11.9%.
This regional dominance makes sense. North American institutions have long been early adopters of alternative investments, and they’re doubling down on what’s working.
The Liquidity Premium Is the New Draw
Over half of investors cited the “liquidity premium” as a key reason for increasing private market allocations—that’s up from just 25% three years ago. What’s a liquidity premium? Simple: you get paid extra returns for tying up your money in less liquid investments.
It’s basically compensation for not being able to sell at the drop of a hat. And investors are increasingly confident this trade-off is worth it for long-term gains.
David Hedalen, head of private markets strategy and research at Aviva Investors, puts it well: “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.”
Private Equity and Infrastructure Are the New Favourites
Real estate used to rule the roost, but there’s been a shift. All regions now expect private equity and infrastructure to deliver the strongest returns over the next five years, knocking real estate equity off the top spot.
The current breakdown shows real estate equity at 22%, private equity at 21.5%, and private corporate debt at 12.5%.
Private equity and private corporate debt have seen the biggest increases since Aviva’s last study. North America and Europe favour private corporate debt as their third choice, whilst Asia-Pacific still backs real estate equity.
Hedalen says this reflects “considered adjustments” as investors rebalance portfolios and hunt for “relative value opportunities” beyond traditional real estate.
Private Markets Outperform? Investors Think So
Over 75% of investors expect private markets to outperform public markets over the next five years—up from 73% last year. That’s a strong vote of confidence, especially as volatility continues to rattle public equities.
The appeal is clear: diversification, better risk-adjusted returns, and access to high-growth companies before they go public.
Pensions Are Getting in on the Action
Defined contribution (DC) pension schemes now account for 59% of total pension assets globally, and they’re increasingly warming to private markets. A large majority of DC funds agree that adding private market assets will lead to higher returns for members, with European investors leading the charge.
Nearly 60% of DC funds also believe there should be more focus on long-term value rather than just cost when considering private market allocations. It’s a maturity shift—moving beyond fee obsession to outcomes.
Interestingly, European and Asia-Pacific investors see private market investing as a way to boost domestic economic growth. North American investors? Not so much. Only 13% view it as economically beneficial, highlighting a regional divide in how private markets are perceived.
Conclusion
Private markets are no longer a niche play—they’re becoming a core allocation strategy for institutional investors worldwide. With £4.7 trillion already deployed and nearly 90% planning to maintain or increase exposure, the momentum is undeniable. Want to stay ahead of the curve? Keep an eye on how your pension or portfolio is adapting to this shift.
FAQ
Q1: What are private markets?
A: Private markets include investments in assets not traded on public exchanges, such as private equity, private debt, infrastructure, and real estate. They typically offer higher returns in exchange for lower liquidity.
Q2: Why are investors increasing private market allocations?
A: Investors are drawn to diversification, better long-term returns, and the liquidity premium—extra compensation for holding less liquid assets. Over 75% expect private markets to outperform public markets over the next five years.
Q3: Which regions are leading private market investments?
A: North America leads with 14.4% of portfolios allocated to private markets, followed by Europe at 12.1% and Asia-Pacific at 11.9%. North America also saw the largest year-on-year increase.
Q4: What asset classes are most popular in private markets?
A: Real estate equity currently holds 22% of allocations, but private equity (21.5%) and infrastructure are expected to deliver the strongest returns over the next five years, overtaking real estate as investor favourites.
Q5: Are private markets suitable for pension schemes?
A: Yes, especially defined contribution schemes. Nearly 60% of DC funds agree that private markets should prioritise long-term value over cost, and many believe they can deliver higher returns for members.
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Effective Date: 15th July 2025
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