The majority of institutional investors intend to reduce their exposure to fixed income, according to a new survey by Aeon Investments.
The survey, which polled European and North American pension plan sponsors and other institutional investors, found 78 per cent of respondents indicated they intend to decrease their allocations to traditional fixed income assets within the next 18 months. Only one in five (20 per cent) intend to increase their exposure.
In a press release, Oumar Diallo, chief executive officer of Aeon Investments, noted the traditional fixed income market is likely to endure a difficult period as inflation and interest rates increase. “In the past 18 months, our research shows 88 per cent of pension funds and other institutional investors cut their allocation to traditional fixed income assets and our findings suggest the majority plan to make further cuts over the next year and a half.”
More than two-thirds (69 per cent) of respondents said they plan to reduce their fixed income allocations by more than 10 per cent, with roughly 13 per cent indicating they’d reduce their traditional fixed income exposure by more than 15 per cent.
The survey also asked where respondents intend to reallocate funds. Nearly three-quarters (73 per cent) indicated at least some of these assets would be reallocated into equities, with 55 per cent saying they’ll reallocate to private equity and real estate. Half of respondents said they intend to reallocate at least 25 per cent of these funds to structured credit investments.
“One investment area that has benefited from this is structured credit focusing on assets such as transportation, infrastructure, real estate and private debt,” said Diallo. “Investment vehicles here can deliver attractive returns on a risk-adjusted basis with lower levels of correlation to risk assets when compared to many traditional fixed income assets.”