SINGAPORE (Jan 7): Private markets are set to become particularly popular this year as institutional investors turn to private markets to mitigate risks amid rising concerns about a downturn in the economic cycle.
Based on BlackRock’s annual survey of global institutions, over half (56%) of the fund manager’s clients stated that the possibility of the cycle turning as one of the most important macro risks influencing their rebalancing and asset allocation plans.
60% of the 230 respondents were notably from the Asia Pacific region, out of which 65% intend to increase their exposure to real assets, 44% to real estate and 40% to private equity.
This is in line with the overall trend of 54% of respondents intending to increase exposure to real assets, 47% to private equity, and 40% to real estate.
Out of all the institutional clients surveyed, over half or 51% said they intended to decrease their allocation to public equities this year – a marked increase from 35% and 29% of clients who similarly planned reductions in 2018 and 2017, respectively.
In particular, BlackRock highlights that this trend is most pronounced in the US and Canada where over two-thirds (68%) said they intend to reduce equity allocations, followed by 40% in Asia Pacific and just 27% in Continental Europe.
Global institutions are appearing to be shifting their focus and priorities as well.
The most prominent consideration in this respect would be to reduce public market risk with their portfolios (41%), followed by increasing allocations to alpha-seeking strategies (32%) and focusing on more environmental, social and governance (ESG) strategies and impact investing (28%).
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These first two factors rank similarly in Asia Pacific with 47% citing reducing public market risk and another 33% prioritising higher allocations to alpha-seeking strategies – while increasing diversification & reducing home market bias came in third at 27%.
“As the economic cycle turns, we believe that private markets can help clients navigate this more challenging environment. We have been emphasising 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,” says Edwin Conway, global head of BlackRock’s Institutional Client Business.
“In a world of increased market volatility and great levels of uncertainty, clients are reimagining what they do with their risk assets… We’re seeing clients becoming more purposeful about their alpha exposures going forward,” he adds.
