Nearly half of institutional investors are looking to increase their private equity holdings this year, the latest survey from BlackRock reveals.
The survey, of BlackRock’s 240 largest institutional clients, of which 33 percent are corporate pensions, 25 percent are insurers and 23 percent are public pensions, also anticipated the “tide of institutional investor interest in less liquid assets to turn into a wave as investors seek alternative ways to generate returns and income”.
Among the survey respondents, over half of the investors in the Asia-Pacific region expect to increase their private equity holdings. Meanwhile 47 percent of investors in Latin America and 43 percent of those in Europe are planning to increase their allocations into the asset class.
Across Europe, Middle East and Africa (EMEA) as well as North America, around a third of investors are also looking to boost their allocations to private equity.
“Institutional investors are recognising that they need to do something different to get the investment outcomes they want. With market volatility and lower returns expected from traditional asset classes for the near future, investors are having to look elsewhere for yield,” Edwin Conway, global head of the institutional client business at BlackRock.
Conway added: “They are increasingly seeking alternative income, and are embracing less liquid strategies to enhance returns. Many alternative asset classes, such as long lease property, infrastructure and renewables, are able to provide inflation protection, along with secure income streams, to take care of investors’ need for cash flows.”
In addition, the survey shows a clear trend that cash will be put to work in 2017.
As investors plan to rebalance their assets for the year, cash will be increasingly deployed. One in four institutions surveyed intend to decrease their cash allocations during the year, twice as many as those who plan to increase their cash holdings (13 percent).
The survey also reveals that investors are looking to allocate to higher yielding areas, and are increasingly considering non-traditional asset classes. Among strategies, private credit is a frontrunner.
Credit strategies will benefit from a rebalancing of assets. US bank loans are expected to see an increase in allocations from investors (26 percent), followed by high yield (23 percent ), securitised assets (22 percent) and emerging market debt (19 percent).
Connect with over 200 private equity professionals across the globe and find out more about Asian private equity market prospects for 2017 at the PEI Global Investor Forum: Tokyo 2017 happening on 27 April 2017.