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Late cycle concerns drive shift into private markets

Institutional investors are navigating market uncertainty in 2020 by moving into private equity, real estate and real assets to safeguard themselves against market shocks, a BlackRock survey has shown.

Mark McCombe, chief client officer at BlackRock, commented: “The survey results show that clients are looking to build resilience into their portfolios by increasing their allocations to less correlated exposures.”

Investors explained that their biggest concerns in 2020 were the possibility of the economic cycle turning, declining global interest rates and geopolitical instability, BlackRock said.

Private equity is seen as the most suited asset class to counter risks stemming from such an environment.

The survey says that the shift from public to private markets is ongoing, and also reflected in last year’s results.

It was conducted over a four-week period in the fourth quarter of 2019.

Making changes

Out of 271 investors surveyed, representing over $9.8trn (€8.9trn) in investible assets globally, 46% intend to increase assets in private equity, compared to 44% saying they will keep investments unchanged and 10% planning to decrease them in 2020.

The survey also demonstrated a rising interest in real estate and real assets, with 49% and 55% of investors, respectively, expressing buying intentions.

This compared with about 40% of investors looking to keep the volume in these asset classes unchanged.

Only 9% of investors plan to decrease assets in real estate and 4% in real assets (see chart below).

In 2020, how do you anticipate changing your asset allocations to the following? 
% increase % unchanged % decrease
Equities 20% 45% 35%
Fixed Income 24% 48% 28%
Hedge Funds 18% 62% 20%
Private Equity 46% 44% 10%
Real Estate 49% 42% 9%
Real Assets 55% 41% 4%
Cash 11% 66% 23%

Source: BlackRock

Private credit will remain a core focus within fixed income portfolios globally over the next year, with more than half (53%) of interviewees intending to increase allocations to the sector.

When asked about challenges in allocating capital to private markets, 24% of survey respondents pointed to a lack of attractive valuations, while only 15% said they faced no challenges in deploying capital to private markets.

The survey reflects similar results uncovered by Last Word Research.

Another finding was that 66% of those surveyed consider environmental, social and governance (ESG) in their investment process, primarily through active ownership or by utilising ESG screens or exclusions.

With 38% actively exploring to integrate ESG, BlackRock said that ESG is mainstream.

Elena Johansson

Senior Reporter

Part of the Bonhill Group.