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In spite of fears about inflation, interest rates and lofty valuations, two-thirds of institutional investors say they’re maintaining their target allocation to private markets, according to a survey for State Street Corp.

The Boston-based asset manager commissioned a survey of 480 asset managers, private market managers and insurers around the world in November.

Inflation and rising interest rates are putting pressure on leveraged assets, and higher yields from traditional bonds are once again providing investors with a safer alternative to private assets. Four in five respondents to the survey agreed that higher rates lessen the appeal of highly leveraged private assets.

Some investors are also concerned about the lack of mark to market in private investments and the absence of liquidity. Some real estate funds froze withdrawals late last year after redemption requests hit pre-set limits. And while public markets tanked last year, valuations of private assets occur less frequently and may not have caught up.

Still, 68% of respondents said they’ll grow their allocations to private markets in line with current targets, and many see buying opportunities.

“Our survey finds that three-quarters of respondents believe tougher economic conditions will create discounted opportunities, but investors are likely to bide their time, as at least half feel valuations have not yet fully adjusted,” said Paul Fleming, head of the global alternatives segment for State Street, in a release.

“Dry powder will become invaluable in the next couple of years.”

Private equity is the most attractive asset class, with 63% of institutional investors planning to make it their largest private allocation in the next two to three years. Real estate and infrastructure were next, each at 48%, with private credit least likely to be the largest allocation (43%).

Institutional investors signalled a more cautious approach to deals. Almost half of respondents (47%) said they’re planning changes to their due diligence processes or narrowing their investment universe with higher baseline standards (42%).

Some managers may also be reducing their allocations to private assets to rebalance portfolios after public securities dropped last year — known as the denominator effect.

Survey respondents said that despite the current challenges, private markets still have plenty to offer retail investors. However, many also expect that an influx of retail investors will lead to regulators demanding greater transparency.