Global institutional investors expect to allocate more funds to active strategies – particularly in real assets and private markets – in a bid to protect themselves against a potential downturn, according to research from BlackRock.
The investment manager’s latest investor survey of 224 investors found that, as a result of low interest rates and relatively high valuations for risk assets, investors plan to maintain “cash levels and selectively increasing allocations to active strategies”.
Nearly two-thirds (65%) of investors, representing $7.4trn (€6.1trn) in assets, plan to leave cash allocations unchanged for the year ahead, while 60% expect to increase their allocations to infrastructure and renewables.
Real estate and private equity are also set to benefit, with 42% and 43% of investors, respectively, intending to increase their exposure.
BlackRock said the interest in active management “should play out across a diverse set of alternative asset classes, including illiquid assets”.
Edwin Conway, global head of BlackRock’s institutional client business, said: “Clients’ intention to reallocate to private markets and other highly active strategies is a recognition that global risks persist and of the value of portfolio managers’ skill.
“Despite synchronised global growth, our overall return expectations for most segments of institutional investors are well below their return targets.”
Conway said maintaining current cash levels and increasing allocations to active managers may seem counterintuitive, “but for many of our clients, it’s their two-pronged strategy for navigating risk and potentially volatile markets”.
He added: ”For several years, we have been talking to clients about the need to embrace alternative strategies as a way to add diverse sources of return, and offset the current rate environment.
“It’s gratifying to see them continuing to embrace these assets as they slowly become the norm for institutional investors seeking differentiated sources of return, inflation-hedging and counter-cyclical investments.”