Investors turn to private markets amidst downturn fears - survey

As many as 60% of Asia Pacific-based respondents in BlackRock’s annual global institutional investor survey said the possibility of the cycle turning is influencing their asset allocation plans. Approximately two-thirds intend to increase exposure to real assets in 2019, 40% to private equity, and 44% to real estate as they seek out returns that are uncorrelated to broader economic cycles.

Private credit is also likely to benefit within fixed income allocations. More than 40% of Asian respondents want to place greater emphasis on this area. Meanwhile, one-third plan on increasing their cash holding to protect portfolios.

The views of Asian investors correlate to those of their peers in other markets. On a global basis, 54% of respondents are keen to invest more in real assets, with 47% and 40% targeting greater private equity and real estate exposure, respectively. Over half want to invest more in private credit, a narrow majority expect to reduce public equities allocations, and two-thirds say their hedge fund exposure is likely to remain unchanged.

“As the economic cycle turns, we believe that private markets can help clients navigate this more challenging environment. We have been emphasizing the potential of alternatives to boost returns and improve diversification for some time, so we’re not surprised to see clients increasing allocations to illiquid assets, including private credit,” said Edwin Conway, global head of BlackRock’s institutional client business.

He added that the move into fixed income – 38% expect allocations to increase, 36% say they won’t change – is especially pronounced for corporate pensions. “Many defined benefit plans are focusing on de-risking, locking in improvements to funded status, and preparing for an end-game,” Conway said.

The survey covered 230 institutional clients with more than $7 trillion in investable assets globally. Asia Pacific institutions represent one quarter of these assets. About 80% of the respondents globally were corporate pension plans, public and government pensions, and insurance companies.

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