By Pia Hecher.
BlackRock has reported that 38% of buy-side firms intend to increase fixed income allocations in 2019, up from 29% last year.
The firm’s annual survey, which interviewed 230 institutional clients also found that asset managers will invest in more private equity and debt this year, shifting risks from public to private markets.
In an attempt to prepare for economic decline, half of the clients plan to reduce their allocation to public equities according to BlackRock. In Canada and the United States, 68% want to reduce equity allocations. BlackRock predicts further inflows into illiquid alternatives, as 54% of respondents want to increase exposure to real assets, 47% to private equity and 40% to real estate.
BlackRock reports that over half of the clients want to increase allocations to fixed income areas such as short duration (30%), emerging markets (29%) and securitised assets (27%), reflecting relative value opportunities in these asset classes. At the same time, 33% of institutions in the Asia-Pacific hope to protect their portfolios by increasing cash holdings.
“The move into fixed income is especially pronounced for corporate pensions, as many defined benefit plans are focused on de-risking, locking in improvements to funded status, and preparing for an end-game,” said Edwin Conway, global head of BlackRock’s institutional client business.
BlackRock claims that globally, 60% of corporate pensions want to decrease equity allocations and 48% hope to heighten fixed income. In Canada and the U.S., 77% plan to expand equities and 67% want to increase fixed income. Corporate pensions internationally want to increase real assets (+47%), private equity (+36%) and real estate (+35%) to strengthen growth portfolios.
Among insurers, BlackRock detects a drive for alternative sources of income. Within fixed income, 72% of insurers want to increase private credit allocations and 41% intend to expand securitized assets. While BlackRock asked clients where they plan to decrease or increase allocations, it did not inquire how reallocation between asset classes would happen.
BlackRock identifies a shift of priorities within equities allocations. It reports that respondents hope to minimize public market risk within their portfolios (41%), expand allocations to alpha-seeking strategies (32%) and focus on Environmental, Social and Governance (ESG) strategies as well as impact investing (28%).
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