Concentration risk in public equities and geopolitical uncertainty are increasingly pushing asset owners towards private markets, including private credit, according to a Morningstar survey.
The research from Morningstar found that asset owners are viewing concentration risk in the Magnificent Seven stocks and the US more broadly as a major concern. Alongside this, policy uncertainty and geopolitical volatility emanating from the US is also weighing on sentiment.
In response, asset owners are increasing diversification across asset classes and raising allocations to private credit and private equity, seeing these asset classes as a way to improve resilience in uncertain market conditions.
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Alongside this, asset owners are prioritising inflation-linked and stable cash-flow investments such as infrastructure and real estate, Morningstar found.
Morningstar surveyed 25 of the largest institutional asset owners from North America, Europe and Asia-Pacific for the research.
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“Asset owners act as stewards for some of the largest pools of global capital and as fiduciaries for a wide range of beneficiaries and key stakeholders,” said Lindsey Stewart, director of institutional insights at Morningstar. “As a result, they often find themselves on the forefront of shifts in the market environment, global investment strategy, and regulatory standards and policy. This year, we’ve seen plenty of changes across all of those factors, so the conversation with this cohort has brought several important issues and pressure points to the surface.”
While the survey also highlighted that asset owners still face difficulties measuring and assessing private market investments due to ongoing transparency and data challenges, with some suggesting that artificial intelligence could help address this.
Another change pointed out in Morningstar’s survey was the shift in attitude towards climate. While climate and broader sustainable investment priorities remain, those discussions are being reshaped by political and regulatory pressures.
Read more: Private credit growth not ‘derailed’ despite volatility and liquidity risks
