State Street Survey: Interest in Illiquid Assets Driving Co-Investment Activity

Sep 11 2017 | 7:00pm ET

An increasing appetite for illiquid assets is driving investor interest in co-investments, consolidation and joint ventures, according to new research from State Street, while outsourcing of activities continues to offer both advantages and challenges.

The study, named A New Climate for Growth: Adapting Models to Thrive, polled more than 500 institutional investors and asset managers from 15 countries in the Americas, Europe and Asia Pacific, the company said. More than half (54 percent) see co-investment – where two or more institutions partner with one another on an investment – as a way to gain new expertise in a segment.

Key highlights from State Street’s survey:

  • Two thirds of asset owners (66 percent) also believe institutional investors with multiple funds will increasingly consolidate them over the next five years. 
  • Over the next 12 months, 68 percent, 65 percent and 48 percent of asset owners plan to co-invest in infrastructure, real estate and private equity respectively. Over the next 12 months asset owners are planning to increase their exposure to these illiquid assets.
  • Over the past five years, nearly a third of asset owners surveyed (30 percent) have brought some asset management activities in-house; and 23 percent plan to do so over the next 12 months.  However, 53 percent of also stated operational resources are being drained as a result of managing the insourcing process; and 57 percent have struggled to get the necessary skills and talent in place to do so.
  • One consequence of the trend toward gaining scale is the reassessment of priorities, State Street said, with asset owners doubling down on certain operations and outsourcing others. More than a third (36 percent) of asset owners have outsourced certain functions so they can focus on value-adding activities in-house; with 37 percent outsourcing functions where they were unable to get scale quickly enough in-house.

Of the 500 polled, 305 were global asset owners, including 150 pension funds, 100 insurers, and the rest were endowments and sovereign wealth funds, the company added. 

State Street is one of the world's largest providers of financial services to institutional investors, including investment servicing, investment management and investment research and trading. The company had $31 trillion in assets under custody and administration and more than $2.6 trillion in assets under management as of June 30, 2017.

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