One in four large institutions is preparing to put more of their cash to work this year, a Blackrock survey has found.
This is almost double the number of those intending to boost their liquid assets (13%), the survey of 240 institutions revealed.
Those ready to increase their investment levels this year are considering high yielding, non-traditional assets such as property, infrastructure and renewable energy.
Blackrock head of institutional client business for the UK, the Middle East and Africa, Justin Arter, said the recent equity rally has been off-set by low rates leaving many institutions underfunded.
“In the past year, investors have been challenged by global equities underperformance and negative fixed income returns,” he added. “On top of this added pressure to deliver returns, reflation is set to take root this year and could well be the final prompt that institutions have needed to rethink their cash allocations and views on risk.
“The tide of institutional investor interest in less liquid assets is turning into a wave, with a significant uptick in allocations anticipated as they seek alternative ways to generate returns and income,” he said.
Real assets are expected to be the largest beneficiaries of institutional asset flows, with 61% looking to increase their allocations here compared to 3% intending to decrease their interests.
Around two-thirds of investors surveyed in Europe and the UK intend to up their allocations this year, compared to half of institutional investors in the US and Canada. The figure is around a third in Latin America.
Real estate is also set to see significant interest, with 47% of investors globally looking to increase allocations to bricks and mortar with 9% expecting to lower their interests in the asset class.
The outlook for private equity flows also looks positive. Almost half of global investors (48%) plan to increase their holdings here, compared to the 13% looking to reduce their exposure.
Blackrock global head of the institutional client business, Edwin Conway, said: “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.
“They are increasingly seeking alternative income, and are embracing less liquid strategies to enhance returns,” he added. “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.”
The survey highlighted a trend for institutions to move away from core assets in the fixed income space and towards higher yield debt, such as private credit. Of those surveyed, 61% expect to increase their interest here, compared to 4% moving in the other direction.
US bank loans are expected to see a rise in demand (26% net), followed by high yield (23% net), securitised assets (22% net) and emerging market debt (19% net).
Globally, one in four investors (28%) intend to increase their allocations to active equities relative to passive equities, with over half (55%) planning to keep their current mix of active and passive strategies constant.
Blackrock’s survey discovered variations within fixed income at a regional level. Institutional investors in APAC and the US and Canada expect their allocations to remain broadly flat, while those in Europe predict a decrease.
Finally, corporate pensions are decreasing their allocations to hedge funds (-22% net), especially in the UK and the US, which instead are moving towards long duration bonds, likely pointing to de-risking trends.
