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The Actuary The magazine of the Institute & Faculty of Actuaries

Global investors shifting risks to private markets

Institutional investors are increasing their asset allocations to private markets amid rising concerns about a downturn in the economic cycle, a global survey has found.

38% plan to increase their fixed income allocations ©iStock
38% plan to increase their fixed income allocations ©iStock

The research from BlackRock – the world’s largest asset manager – shows that over half its clients intend to reduce their allocations to public equities over 2019.

This is most pronounced in the US and Canada, where more than two-thirds intend to decrease allocations, compared with less than a third in Continental Europe.

The respondents said they are likely to turn to illiquid assets, with 54% intending to increase exposure to real assets, 47% to private equity and 40% to real estate.

Meanwhile, more than half said a potential economic downturn was one the most important macro risks influencing their rebalancing and asset allocation plans.

“We believe that private markets can help clients navigate this more challenging environment,” said Edwin Conway, global head of BlackRock’s Institutional Client Business. 

“We’re not surprised to see clients increasing allocations to illiquid assets, including private credit – we have been emphasising the potential of alternatives for some time.”

The survey of 230 clients, representing over £7tn (£5.5trn) in investable assets, found that 38% plan to increase their fixed income allocations, up from 29% last year.

Conway said the move to fixed income is especially pronounced for corporate pensions, with many defined benefit plans focused on de-risking and “preparing for an end-game”.

The most prominent consideration mentioned by the survey respondents was reducing public market risk in portfolios, followed by increasing allocations to alpha-seeking strategies.

It was also found that a quarter of BlackRock clients intend to focus more on Environmental, Social and Governance (ESG) strategies and impact investing this year.

“In a world of increased market volatility and great levels of uncertainty, clients are reimagining what they do with their risk assets," Conway continued.

“It’s important for clients to stay invested, with equities continuing to have a significant role in portfolios and alpha seeking-strategies making particular sense in the current climate.” 

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