EUROPE – Institutional investors boosted allocations to alternatives such as infrastructure debt and private equity in the first quarter while cutting exposure to local equities and debt, a survey reveals.
The new data also suggested these strategies were likely to continue in the current quarter.
Just under half (47%) of the 62 institutions responding to the AMP Capital Institutional Investor Research Report said they increased their allocation to infrastructure debt between January and the end of March.
Twenty-six percent said they had raised their allocation to private equity in the period.
Anthony Fasso, international chief executive and head of global clients, said: "The trend for large institutional investors globally to increase their allocations to alternative asset classes is set to continue."
This suggested investors were seeing private, direct investments as an attractive source of alternative returns, with less volatility than long-term equity and bond investments, even though direct investments such as private equity, infrastructure and direct real estate were often illiquid, he said.
The survey took in responses from North and South America, Asia and Europe.
Nine percent of investors responding reported having cut their allocation to domestic equities in the first quarter, and 12% said they had reduced the proportion of regional equities they held.
By contrast, 9% said they had boosted their allocation to emerging markets equities.
Within fixed income, 9% said they cut their proportion of domestic corporate bonds, and the same proportion reported moving to a lower allocation to listed bond funds in the quarter.
Looking ahead to the second quarter of 2013, the survey suggested investors would generally stick with current asset allocation strategies.
The patterns seen in the first quarter – where increases and decreases in equity and fixed income allocations were approximately equal – were shown as likely to continue on the whole.
They survey showed 33% expected to increase their allocation to direct infrastructure, 21% expected to raise their private equity allocation and 20% saw their proportion of hedge funds growing over the period.
Infrastructure was the only asset class that no investor intended to reduce, the data showed.
Asked about structural changes they expected to make in the year ahead, between one-quarter and one-third of respondents said they expected to expand into new asset classes, limit risk in various ways and increase their roster of managers.
Smaller proportions – between 3% and 11% – said they would cut their manager roster, make changes to currency overlay strategies or deleverage.
Pension funds were shown to be more likely to anticipate moving into new asset classes than were other types of institutional investor in the survey – insurance companies, sovereign wealth funds, foundations and others.
While 43% pension respondents said they expected to expand into infrastructure, private equity, real estate and renewable energy in the year ahead, only 22% of non-pension respondents planned to do so.
The expected "great rotation" from bonds to equities in response to rock-bottom bond yields had failed to materialise, the survey found.
"A rotation out of bonds and into equities has not been widely adopted among global institutional investors," Fasso noted.
"Rather, we see them moving out of cash and into both bond and equity investments, and making shifts within their fixed income investments by moving away from sovereign bonds and into high-yield corporate debt," he said.
Of investors increasing their real asset allocations, 72% said they were most likely to increase their proportion of real estate, followed by 56% saying they would likely raise their infrastructure allocations.
Twenty-eight percent picked infrastructure debt as the asset sub-class they would be most likely to boost.