In the face of increasing risk, large asset owners are turning to private market allocations, according to a new report by Mercer.
The report, which surveyed asset owners representing more than US$2 trillion in assets collectively, found nearly half (45 per cent) of institutional investors increased their allocation to private markets.
In the next year, 47 per cent of investors said they plan to increase their portfolio’s allocation to private debt and credit and 46 per cent said they’re targeting increases to infrastructure allocations.
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Among institutional investors with more than $20 billion in assets under management, 70 per cent said they’re increasing allocations to private debt and credit while 63 per cent are going to invest more in infrastructure.
The report also found institutional investors consider themselves more vulnerable to key risks over the next 12 months compared to last year. A third (32 per cent) said they’re concerned about regulatory, compared to 20 per cent last year. Geopolitical risks (35 per cent), inflation (31 per cent) and monetary tightening (30 per cent) were also among the leading risk factors.
In the face of this risk, institutional investors are relying on several strategies, including adjusting the duration of fixed-income allocations (53 per cent) and adjusting the geographic exposure of assets (47 per cent).
In a press release, Eimear Walsh, Mercer’s European head of investments, said large asset owners are optimistic about the long term despite current volatility challenges in equity, fixed income and currency markets. “That said, in the year ahead, they plan to make some strategic portfolio adjustments, just as they did last year, to mitigate the risks and exploit the opportunities they see emerging.”
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