S&P Global — 21 February 2025
Daily Update: February 21, 2025
Large Asset Owners Increase Private Market Allocations with Risk Top of Mind
By Nathan Hunt
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Large institutional investors continue to steadily increase their allocations to private markets, despite the challenges of this opaque and illiquid asset class. The $1.5 trillion global public credit market had a banner year in 2024, with near-record new issuance readily absorbed. Private equity firms have also been noticeably upbeat on investor calls, even with three long years of declining fundraising. Regardless of the challenges for both private credit and private equity, asset owners require these riskier asset classes to achieve return targets and to raise their risk profile.
Marcie Frost, CEO of the California Public Employees' Retirement System, and Martina Cheung, CEO and president of S&P Global, recently joined S&P Global’s "Leaders" podcast for a wide-ranging discussion. Because Frost manages a defined benefit plan that provides retirement benefits and healthcare for California public employees, private markets were very much on her mind.
“Our board just over a year ago increased the allocations both to private equity and to private debt,” Frost said. “Even though private debt was not at its current allocation target at the time, the board went ahead and increased it by another 3%.”
S&P Global Market Intelligence recently analyzed the top 20 global pension funds with the largest dollar allocation to private equity. This analysis found that the firms had allocated a record $707.60 billion to private equity in the first nine months of 2024. The big allocators preferred large, well-known firms, including Blackstone Inc., Apollo Global Management Inc. and CVC Capital Partners. Allocations to private equity ranged from a low of 8.8% to a high of almost 50% as a percentage of total assets under management.
“From an asset owner standpoint … what we’re observing is a phenomenon of asset owners increasing allocations to a broader alternatives bucket, which, in our parlance, we phrase as private markets,” Cheung said. “It’s about $15 trillion or so we expect it to be this year and then climbing very fast after that. Maybe about $18 trillion over a three-year time period.”
Allocations to private markets picked up significantly during the period of lower for longer interest rates as asset owners engaged in a difficult search for returns. However, as interest rates increase, asset owners continue to expand their exposure to private markets.
“Private markets have become extremely important as we have to add that active risk to really build out the portfolio, to get closer to our 6.8% return hurdle that we’re expecting,” Frost said.
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