Impact and sustainable mandates are forecast to represent nearly half (45%) of UK institutional investors' private markets allocations within two years, according to new research by UK investor Legal & General (L&G).
This marks a shift from the current allocation of 37%, with the research showing that asset owner believe that they can achieve greater environmental (55%) outcome through private markets.
L&G’s findings are drawn from a study involving 150 institutional investors, including defined contribution (DC) and defined benefit (DB) pension schemes, the Local Government Pension Scheme (LGPS), insurance firms and charities, collectively managing over £7.6trn in assets.
According to the research, over three-quarters of investors (77%) highlighted environmental outcomes as key priorities within the market, while 75% pointed to social outcomes, including affordable housing and health care.
Bill Hughes, global head of private Markets at L&G asset management, said: “This research confirms that investors are looking to increase their allocations to private markets for the potential increased returns they can deliver and also for their sustainability and impact characteristics.”
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DC pension schemes are anticipated to lead the way, with sustainable mandates making up 50% of their portfolios by 2026, the research found. Insurance companies and DB schemes follow closely, with projected allocations of 47% and 45%, respectively.
L&G found that clean energy and renewable infrastructure dominate investors' environmental agenda, with 81% prioritising these areas as they seek to address the climate transition and decarbonisation. Other key sectors include sustainable transport (46%) and green real estate (36%).
Alongside this, nearly 60% of respondents identified the climate transition as a top thematic trend offering robust return opportunities, prompting increased allocations to infrastructure, private equity, venture capital and private credit. 53% of those surveyed plan to increase allocations to infrastructure over the next two years, with 43% set to also increase private equity and private credit, L&G research found.
