Report finds DC plans boost private credit and real estate bets to improve member outcomes
Global pension funds are leaning harder into private markets, chasing diversification, illiquidity premia and private credit to boost long-term outcomes.
Aviva Investors’ latest Private Markets Study revealed average allocations to private markets have climbed to 12.5 percent of institutional portfolios globally, the highest level in the survey’s eight-year history, based on responses from 500 investors overseeing US$6.5tn in assets across the UK and Europe, North America and Asia-Pacific.
North American investors lead with a 14.4 percent allocation, compared with 12.1 percent in Europe and 11.9 percent in Asia-Pacific, and posted the largest year-over-year increase, nearly 2 percentage points from 12.5 percent.
Aviva Investors reports that 88 percent of respondents plan to increase (49 percent) or maintain (39 percent) their private markets exposure over the next two years, while 76 percent expect private markets to outperform public markets over the next five years, up from 73 percent in the previous study.
Diversification and illiquidity premia sit at the core of that shift.
76 percent of investors point to “diversification of risk and returns” as a primary reason to allocate to private markets, and 55 percent highlight “the presence of an illiquidity premium,” up sharply from 25 percent in 2023.
The firm’s quarterly “Illiquidity premia in private debt” research, which has analysed more than 2,100 private debt deals over more than 28 years, most recently found that illiquidity premia in private debt remain above long-term averages.
David Hedalen, head of Private Markets Strategy & Research at Aviva Investors, said this year’s study highlights “the increasing importance of illiquidity premia” in private markets and that more confidence in “this reward for having increased illiquidity in portfolios” should reassure investors that such assets “can generate improved returns over the long run.”
For return expectations, private equity (51 percent) and infrastructure equity (46 percent) top the list of asset classes investors expect to deliver the strongest risk-adjusted returns over the next five years.
North American and European respondents rank private corporate debt third (31 percent and 34 percent), while Asia-Pacific investors choose real estate equity (32 percent).
In current allocations, real estate equity remains the largest private markets exposure globally at 22 percent of total private markets holdings, with private equity at 21.5 percent (up from 18.8 percent in 2024) and private corporate debt at 12.5 percent (up from 10.3 percent).
Hedalen said real estate equity “remains the dominant destination” for institutional capital and that recent shifts look more like “considered rebalancing” after the 2024 correction than a wholesale rethink of the sector.
Defined contribution plans now account for 59 percent of total pension assets across the seven largest markets, according to the Global Pensions Asset Study 2025 by the Thinking Ahead Institute and WTW, cited in the Aviva Investors release.
Within that DC segment, 72 percent of funds globally agree that adding private markets to accumulation portfolios will deliver better performance outcomes for members, with European investors the most supportive at 73 percent.
When DC funds assess private markets, 59 percent say they want more emphasis on long-term value and less on cost.
Only 13 percent of North American DC funds agree that private markets allocations should support economic growth in their home country, versus a global average of 41 percent, 52 percent in Europe and 41 percent in Asia-Pacific.
Where DC funds have already folded private markets into default options, real estate (59 percent), private debt (48 percent) and private equity (43 percent) are the most commonly used asset classes.
Within private debt, investors in all three regions see asset-backed lending (49 percent), and opportunistic and distressed debt (48 percent), as the sub-asset classes with the most attractive risk-adjusted return potential over the next two years.
Hedalen called the evolution of private credit a structural change, saying it is “no longer a substitute for bank lending, but instead is a specialised and differentiated asset class.”
He added that they “see a strong case for strategies such as multi-sector private credit…which can pivot across sectors and capital structures as relative value shifts.”
Access preferences are shifting alongside allocations.
58 percent of respondents now favour single-asset-class pooled funds, up from 40 percent last year.
Co-investment has moved into the mainstream, with 54 percent naming it their preferred access route, up from 35 percent, while multi-asset pooled funds are cited by 50 percent, slightly higher than 46 percent a year earlier.
Among larger institutions, co-investment demand has jumped.
The study reports that 59 percent of investors with $10bn to $20bn in assets under management and 57 percent of those with $20bn or more prefer co-investment, compared with 25 percent and 38 percent, respectively, in last year’s survey.
For these investors, the main attractions are access to larger deals (55 percent), cost reductions (47 percent) and access to high-quality assets (41 percent).
Evergreen funds also resonate with many respondents: 79 percent of global investors see flexibility on contributions and withdrawals, and the absence of a fixed lifespan or exit deadline, as the key benefits, while only 30 percent point to more frequent valuations as a major advantage.
Hedalen said that “pooled funds remain the most popular access route,” but that their findings also show “a marked increase in appetite for co-investment opportunities from institutional investors of all sizes.”
He said this trend reflects a desire for “greater control of portfolios at an asset-specific level” and more tailored approaches to risk, return, liabilities and other non-financial outcomes, including regional preferences.
