COVID-19, political unrest, market volatility increase the importance of private markets in 2021 and beyond, according to Mercer research

  • Globally, select private market strategies appear to be well-positioned to capitalize on post-COVID changes in consumer and business behaviors
  • Allocations to US private equity, venture capital and infrastructure strategies were relatively steady despite weaker investment and realization activity
  • Early impact of COVID-19 muted new commitments to Asia-focused strategies
  • European private equity fundraising and investment activity has remained sluggish

Asia, January 12, 2021


New strategic research from Mercer focuses on what the coming year holds for alternatives, outlining some of the issues investors may want to follow closely in an effort to optimize their portfolios.


“We are seeing that, though investors have been tested this year, the experiences of previous crises have made them more resilient. There were unorthodox challenges such as not being able to vet new managers in person, but clients continued to put capital to work, especially with existing investment manager relationships across all private market segments,” said Raelan Lambert, Global Head of Alternatives at Mercer.


She continued, “In 2021, investors should consider stretching their risk appetites and consider their allocation to real estate. Although the pandemic will continue to challenge the property market, 2021 is likely to be an opportune time for entering the asset class with a medium- to longer-term investment horizon. Initially, investors should prioritize allocations to the largest, most-liquid markets, where price discovery is furthest along.”


The white paper, Private market challenges: Optimizing your portfolio and top considerations for private markets in 2021, includes issues such as:


  • Real estate: the state of current market conditions and opportunities to potentially capitalize on post-COVID changes.
  • Natural resources: the reasons behind the significant challenges facing the market and the opportunities inherent in the sector.
  • Infrastructure: the growth and attractive performance of the market as well as the challenges associated with managing significant market changes.
  • Private debt: how the landscape has changed from the global financial crisis to the 2020 pandemic.
  • US private equity and venture capital markets: how advice that clients receive from their legal counsels on terms and conditions could potentially misalign with managers’ interests.
  • European private equity: how the COVID-19 virus has compounded the uncertainty created by Brexit.
  • Asian private equity: the effect of the pandemic and the ongoing political tension between the US and China.
Opportunities in Asia


While the early impact of COVID-19 muted new commitments and investments in Asia-focused strategies, investors appear to be benefitting from more robust investment activity particularly within private markets as the region commences its economic recovery sooner compared to other parts of the world from the global pandemic.


Mainland China has been somewhat of an economic beacon representing the only major economy to have likely grown consistently from mid-to-late 2020.[1] Strong pandemic containment measures have been credited in helping turn-around the initial bleak picture that saw Q1 2020 private equity fund raisings and investments decline 48% and 27%, respectively on a year-on-year basis with hardly any exits occurring throughout the entire year. By Q3 2020, fund raising and investment activity had broadly recovered alongside China’s economic recovery albeit below pre-pandemic levels.


Real estate, which has seen the acceleration of pre-existing structural shifts, particularly in areas covering online retail and office work flexibility due to COVID-19 that are expected to present opportunities for investors in Asia.


Richard Tan, Mercer’s Portfolio Specialist for Asia said, “Real estate valuations are slow to respond in this part of the world, but once the recovery sets in, we are particularly interested in opportunities in China and Japan, where supply and demand dynamics remain favorable. Across the region, data center and logistics space is viewed as attractive, as the quick adoption of e-commerce during the pandemic has prompted a spike in demand.”


Politics and financial headlines, including the passage of the Holding Foreign Companies Accountable (HFCA) Act in July 2020, point to a gradual decoupling between the world’s two largest economies, but the data shows that US foreign direct investment in China has so far remained steady.


Mr Tan said, “This highlights the importance of focusing on risk-adjusted return potential. We believe that the structure resilience of the Chinese economy following COVID-19 continues to present an attractive investment opportunity.”


Click here for the full 2021 Private Market Challenges paper.


About Mercer


Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 76,000 colleagues and annual revenue of $17 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit Follow Mercer on Twitter @Mercer.


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[1] IMF World Economic Outlook Update, 2020