Key Takeaways
- • Private alternatives currently represent approximately 25% of institutional investor portfolios in EMEA, with real estate equity (18%), private credit (11%), private equity (10%), and real estate debt (10%) leading allocations among 250 institutions managing $10 trillion in AUM.
- • Over 75% of survey respondents plan to increase allocations to private alternatives over the next two years, signaling sustained demand and shifting capital flows toward alternative asset classes.
- • Private credit (44%) and real estate debt (42%) are the highest-priority asset classes for allocation increases, driven by investor appetite for coupon-generating income in a high interest rate environment and compensation for illiquidity risk.
- • Institutional investors cite diversification benefits and reduced exposure to equity market volatility as primary drivers for expanding private alternative holdings, particularly among pension funds and large asset owners.
- • The shift reflects a structural reallocation strategy in response to geopolitical uncertainties and persistent market volatility across traditional public markets.
Summary
A comprehensive study conducted by PGIM and Institutional Investor's Custom Research Lab surveyed 250 allocators across Europe and the Middle East representing $10 trillion in assets under management to assess institutional demand for private alternatives. The research reveals a significant and accelerating shift in portfolio construction, with private alternatives already comprising approximately 25% of surveyed institutional portfolios and positioned for further expansion.
Within current allocations, real estate equity dominates at 18% of private alternative holdings, followed by private credit at 11%, private equity at 10%, and real estate debt at 10%. This distribution reflects a diversified approach across the alternative spectrum, though certain asset classes are attracting heightened attention. More than 75% of survey respondents indicated plans to increase their allocations to private alternatives over the next two years, demonstrating broad institutional commitment to this reallocation trend.
The drivers of this shift are multifaceted. Institutional investors explicitly cite diversification benefits as a primary motivation, particularly given heavy existing exposure to equity market volatility in traditional portfolios. A pension director at a $10 billion UK pension plan noted that "our private asset allocation is driven by the diversification benefits of the asset class as we are heavily exposed to equity market volatility in our portfolio. Moreover, there has been a greater focus on investing in income-producing alternative assets in the last few years."
Two specific asset classes are generating the most robust expansion plans: private credit and real estate debt. Forty-four percent of respondents plan to increase private credit allocations, while 42% target increases in real estate debt. Both strategies address a similar institutional need: capturing stable coupon payments in the current high interest rate environment while securing compensation for illiquidity and market dislocations. This tactical allocation shift suggests investors are exploiting yield premiums and illiquidity spreads that have widened in the post-2022 volatility environment.
The survey results indicate a structural realignment in institutional portfolio construction, driven by geopolitical risks, persistent market volatility, and the need for alternative return streams less correlated with public equity markets. This institutional capital reallocation will likely sustain elevated demand for private market vehicles and experienced alternative asset managers throughout 2025 and beyond.
Within current allocations, real estate equity dominates at 18% of private alternative holdings, followed by private credit at 11%, private equity at 10%, and real estate debt at 10%. This distribution reflects a diversified approach across the alternative spectrum, though certain asset classes are attracting heightened attention. More than 75% of survey respondents indicated plans to increase their allocations to private alternatives over the next two years, demonstrating broad institutional commitment to this reallocation trend.
The drivers of this shift are multifaceted. Institutional investors explicitly cite diversification benefits as a primary motivation, particularly given heavy existing exposure to equity market volatility in traditional portfolios. A pension director at a $10 billion UK pension plan noted that "our private asset allocation is driven by the diversification benefits of the asset class as we are heavily exposed to equity market volatility in our portfolio. Moreover, there has been a greater focus on investing in income-producing alternative assets in the last few years."
Two specific asset classes are generating the most robust expansion plans: private credit and real estate debt. Forty-four percent of respondents plan to increase private credit allocations, while 42% target increases in real estate debt. Both strategies address a similar institutional need: capturing stable coupon payments in the current high interest rate environment while securing compensation for illiquidity and market dislocations. This tactical allocation shift suggests investors are exploiting yield premiums and illiquidity spreads that have widened in the post-2022 volatility environment.
The survey results indicate a structural realignment in institutional portfolio construction, driven by geopolitical risks, persistent market volatility, and the need for alternative return streams less correlated with public equity markets. This institutional capital reallocation will likely sustain elevated demand for private market vehicles and experienced alternative asset managers throughout 2025 and beyond.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.