Large institutional investors plan to put more cash towards less liquid assets this year, according to a new study by BlackRock Inc.
Its survey of 240 global institutional investors found 25 per cent of respondents intend to decrease their cash allocations in 2017 and 58 per cent plan to increase their real asset allocations compared to 49 per cent in 2016.
“In the past year, investors have been challenged by global equities under performance and negative fixed-income returns,” said Edwin Conway, managing director and global head of BlackRock’s institutional client business at BlackRock. “On top of this added pressure to deliver returns, reflation is set to take root this year and could well be the final prompt that institutions have needed to rethink their cash allocations and views on risk.
Read: Institutional investors expect more changes to asset allocations: survey
“The tide of institutional investor interest in less liquid assets is turning into a wave, with a significant uptick in allocations anticipated as they seek alternative ways to generate returns and income.”
Indeed, Blackrock’s survey confirmed a shift towards alternative assets with 61 per cent of respondents saying they expect to increase their real asset allocations in 2017 while only three per cent plan to decrease allocations.
Real estate and private equity continue to draw investors with 47 per cent of those surveyed saying they plan to increase their real estate allocations and 48 per cent saying they intend to boost their exposure to private equity. “Institutional investors are recognizing that they need to do something different to get the investment outcomes they want,” said Conway.
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He noted investors are looking to less liquid assets such as long-lease properties, infrastructure and renewables that enhance returns, provide protection from inflation and allow for secure income streams.
The study shows 61 per cent of investors are also planning to increase allocations in private credit.
Conversely, hedge funds haven’t drawn as much interest, indicating a trend towards de-risking, according to the study. It noted corporate pensions around the world, except for Latin America, have decreased their allocations in hedge funds in favour of long-duration bonds.
Read: Institutional investors switching to alternatives: survey