Fund managers expect emerging market debt and equity to be the key growth areas for institutional investment over the next 18 months, according to Aon Hewitt.
A survey of 120 fund managers carried out by the consultancy found that 50% expect their institutional clients' portfolios to allocate more of their assets to emerging market equity. At the same time, 40% of those surveyed expect investment in emerging market debt to increase.
Just over one-third (35%) expect to invest an increased share of their clients' portfolios in global equities, while the same percentage planned to invest more in infrastructure.
Meanwhile, one in five (20%) expect to invest more in high yield assets and 15% expect investments in property to increase.
Lennox Hartman, global head of fixed income strategies at Aon Hewitt, said: 'As sluggish growth rates continue across Western economies, institutional investors are looking further afield, beyond domestic equities, for positive returns.
'Despite the relative under-performance of emerging market equities in the first quarter of the year, we understand this trend to be part of a much wider strategy among institutional investors in their quest to outperform long-term liabilities.'
The survey also found that fund managers expect their institutional clients to decrease their asset allocations to investment-grade credit and 'fund of hedge funds'. The latter is a fund that invests in portfolio of different hedge funds to diversify the risks associated with a single investment fund.
Guy Saintfiet, UK head of liquid alternative strategies at Aon Hewitt, said the move away from investment-grade credit was unsurprising given the expected low returns from this asset class at the moment. 'With tight credit spreads and historically low gilt yields, this asset class has clearly lost favour among institutional investors,' he noted.
'The fund of hedge funds business model has been under pressure for a number of years now and as investors seek uncorrelated sources of returns, there is a clear need for more sophisticated approaches to obtaining the best returns.'
