State Street Study Reveals Asset Owners’ Increasing Appetite for Illiquid Assets is Driving Interest in Co-Investment

Monday, September 11, 2017 10:30 am EDT

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BOSTON & LONDON

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STT
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$STT study reveals asset owners’ increasing appetite for illiquid assets is driving interest in co-investment.

BOSTON & LONDON--(BUSINESS WIRE)--State Street Corporation (NYSE: STT) announced today the findings from its latest study, A New Climate for Growth: Adapting Models to Thrive 1 , which reveals asset owners are gaining scale through consolidation and co-investment; and outsourcing certain key functions, while bringing others in-house.

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. Two thirds of asset owners (66 percent) also believe institutional investors with multiple funds will increasingly consolidate them over the next five years.

However, when bringing more functions in-house asset owners have faced multiple challenges; 53 percent of surveyed respondents 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.

More than half (54 percent) of the asset owners surveyed see co-investment – where two or more institutions partner with one another on an investment – as a way to gain new expertise. 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. The study also reveals that over the next 12 months asset owners are planning to increase their exposure to these illiquid assets.

Another consequence of this trend toward gaining scale is the reassessment of priorities – 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.

“Given that mounting cost pressures and persisting lower-for-longer yields are systematic changes to the investment environment, it seems clear that the trends identified by our study will likely continue as asset owners strive to deliver better returns at lower costs to meet liabilities,” said Martin Sullivan, head of asset owner solutions, Americas. “Finding the right partners to work with, will be the key to ensuring this strategy of gaining scale, reassessing internal resources and reviewing external support pays off.”

Later this year, State Street will unveil a new benchmarking tool, which will allow its clients to benchmark themselves against the research findings and measure their preparedness for the future versus their peers.

For further details on the study, please click here.

1 A New Climate for Growth: Adapting Models to Thrive is based on a survey of more than 500 institutional investors and asset managers from 15 countries in the Americas, Europe and Asia Pacific, and is focused on these institutions’ priorities for growing their assets, businesses and improving their investment performance over 1-5 years. Based on this survey’s results it highlights key conclusions that outline the strategies and models necessary to achieve these growth aims. 305 were global asset owners, including 150 pension funds, 100 insurers, and the rest were endowments and sovereign wealth funds

About State Street Corporation

State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors, including investment servicing, investment management and investment research and trading. With $31.0 trillion in assets under custody and administration and $2.60 trillion* in assets under management as of June 30, 2017, State Street operates in more than 100 geographic markets worldwide, including the US, Canada, Europe, the Middle East and Asia. For more information, visit State Street’s website at www.statestreet.com.

* AUM reflects approx. $34 billion (as of June 30, 2017) with respect to which State Street Global Markets, LLC (SSGM) serves as marketing agent; SSGM and State Street Global Advisors are affiliated.

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