Instos seek returns from PM amid turbulence: IFM

Institutional investors are constantly seeking resilience and growth amid a volatile market environment, as many are resorting to private markets, with a focus on infrastructure, to achieve that, IFM Investors said.

IFM Investors' Private Markets 700 (PM700) survey, which gathered insights from 700 senior investment professionals across pension funds, insurance companies, wealth managers and investment consultants, displayed a heightened sentiment in allocating capital towards private markets, driven by opportunities arising from megatrends like deglobalisation, decarbonisation and digitisation.

"The global race to invest in digital transformation and AI, which was viewed as the third most impactful force in 2025, now ranks second," the report said.

"The imperative to mitigate climate change by decarbonising and make investments associated with the energy transition, and demographic change and population growth are also viewed as key drivers."

Seventy-one percent noted investing in the megatrends is "essential" to achieving their returns objectives. Private markets are seen as an effective way to access these overarching themes.

While a total of 61%, rising to 68% in Asia Pacific, said private markets are better than public markets for building megatrend exposure. Just under half (45%) view private markets as core driver for "structural growth" in opportunities like artificial intelligence and the energy transition.

Speaking to Financial Standard, IFM Investors global head of investment research Jeff Chee said Australian investors are constantly taking megatrends into account, as well as inflation volatility and supply constraints, but are also considering demographics in aging populations, evolution of workforces and societies, and debt and deleveraging.

"Very high levels of public debt do constrain the ability for potential sovereigns to finance the investment that's required for the energy transition, AI CAPEX, etc," he said.

He also reiterated that no asset class is economic shock proof, but private markets tend to be more "naturally resilient" towards economic shocks than conventional public market and macro-sensitive assets.

"But if we think more broadly about the big picture megatrends... a lot of them point towards increasing inflation volatility because of consumption of commodities or hitting supply constraints," he said.

"Inflationary environments, particularly those that are driven by supply shocks, are challenging traditional portfolio construction when equities underperform and bonds fail to diversify equity risk. On the flip side, the supply constraints and inflation volatility mean assets that are scarce and ascent into the economy are becoming increasingly important."

The survey also found investors are finding infrastructure equity to be the most "appealing" of all private market asset classes, narrowly ahead of private equity, with 63% stating they want to add to their infrastructure equity allocations over the next three to five years.

In response, Chee noted investors are generally attracted to the sector from developments like data centres and redevelopments of aging infrastructure.

"Infrastructure was definitely the asset class that, of the market asset classes, that was the one where there was the most investor interest in terms of allocation," Chee said.

"The energy transition is one area where significant investments going to be required; we can already see there's a lot of activity going around potential data centres, [but] this is not saying that IFM has a view that these are necessarily attractive in isolation or in absolute terms.

"It is really important to be careful about asset selection and we're seeing some social backlash on these assets."

He also emphasised the need to upgrade general infrastructure obsolescent cyclical investments, highlighting investing in open-ended infrastructure will take charge.

"Open-ended infrastructure investing is the ability to invest capital by improving existing platforms, reinvesting in existing assets and generating value via active management rather than adding new assets," he said.

"It is also about improving what's there and actively manage the assets that we own will be as important as finding the next attractive deal."