Australian institutional investors plan to keep their finger on the pulse of private markets, new data has shown, with local investors aiming to further expand allocations into the sector.
This is according to State Street’s latest Private Markets Survey, which showed that Australian instos plan to increase allocations to 45 per cent over the next three to five years, up 6 percentage points from last year’s survey, marking the largest increase over any other APAC country.
The survey, which gathered responses from 450 investors globally, found that six in 10 Australian respondents currently have between 10 and 30 per cent of their portfolio based in private assets. Over the next three to five years, this is expected to grow to seven in 10.
Notably, 40 per cent of Australian institutional investors expect to allocate more than half of their portfolio to private markets.
According to State Street’s head of Australia product team, Cleyde Hazell, the results spoke to a growing institutional readiness for alternative vehicles.
“Renewed uncertainty about the world economic environment from the new US administration’s tariff policies and the possible reciprocations from its major trading partners, is influencing institutions’ investment strategies,” Hazell said.
“Australian investors are responding to these structural and market shifts by embracing private markets and they are doing so more assertively than their regional peers.”
It also comes after the Australian government, in its 2024–25 budget, committed $22.7 billion over the next decade to build Future Made in Australia, which will also invite private sector investment locally.
“Although investments in private assets continue to rise, the pace of global growth seems to be levelling off,” Hazell said. “This trend aligns with findings from our earlier surveys, which suggest that the heightened emphasis on due diligence and evaluating risk versus return – prompted by the higher interest rates of the early 2020s – is resulting in fewer, but higher-quality investments.”
State Street said that it’s becoming a question of quality, not quantity. Previous data highlighted that institutional investors are becoming increasingly selective when it comes to their private market investments, with an eye for due diligence and risk assessment.
According to this year’s survey, this fact is clearer than ever, further evidenced by capital allocation moving from emerging to developed markets.
“In APAC, institutions are particularly looking at investment opportunities in North America for private equity investments and in developed APAC for private debt,” the financial giant said.
What segments are looking attractive?
State Street said that private equity continues to be the most appealing asset class for institutional investors across APAC, with 75 per cent of respondents across the region planning to increase their allocation to private equity over the next two years, compared to 66 per cent globally.
However, almost half (47 per cent) of Australian investors believe that private debt will benefit the most, particularly on the back of anticipated growth of semiliquid funds.
Namely, the survey also found that retail-style fund vehicles are expected to become the dominant channel for private markets investment globally in coming years, with 53 per cent of respondents projecting that at least half of private market flows will soon come through semiliquid retail products.
Closer to home, many Australian institutions are shifting away from traditional fundraising channels in favour of retail-focused strategies.
“Investors believe private debt is easily securitised and therefore will benefit greater from the growth of individual/DC focused semi-liquid funds. Developed APAC has been singled out as a key market for investing in private debt,” Hazell said on the opportunity that local investors are seeing in private debt.
“Geopolitical uncertainty – such as ongoing tensions around tariffs and global trade relationships – have also influenced this shift. These developments appear to be accelerating the democratisation of private markets. The relatively smoother, less volatile return profile of these assets is a key part of their appeal with a significant proportion of APAC respondents citing this as a key reason for increasing allocations.”
