SINGAPORE - More institutional investors are shifting risks from public to private markets amid concerns of the economic cycle taking a downturn, asset manager BlackRock has found in a survey of 230 of its largest institutional clients, representing over US$7 trillion in assets.
Of the respondents, 51 per cent intend to decrease their allocation to public equities in 2019. This represents a growing shift from public to private markets, compared to 35 per cent planning such a decrease in 2018, and 29 per cent in 2017. The trend is greatest in the United States and Canada where 68 per cent plan to do so, compared to 40 per cent in Asia-Pacific and 27 per cent in continental Europe.
The possibility of the economic cycle turning was the macro risk most cited as an influence on clients' rebalancing and asset allocation plans, named by 56 per cent of respondents overall, and 60 per cent of respondents from Asia-Pacific.
The most popular assets for a planned increase in allocations were real assets, named by 54 per cent of respondents; private equity, named by 47 per cent; and real estate, named by 40 per cent. These were similarly popular in Asia-Pacific specifically, with 65 per cent of respondents in the region intending to increase exposure to real assets, 44 per cent to real estate and 40 per cent to private equity.
More investors are also looking to increase fixed income allocations, with 38 per cent planning to do so, up from 29 per cent the previous year. Within fixed income, the shift to private credit continues with 56 per cent of global respondents planning to increase their allocations.
Respondents also expect to increase allocations to other fixed income areas, such as short duration (30 per cent), securitised assets (27 per cent) and emerging markets (29 per cent), "likely reflecting relative value opportunities in these asset classes", said BlackRock.
However, most institutions want to maintain (65 per cent) or even increase (20 per cent) their cash levels in 2019, especially in the Asia-Pacific region, where a third of respondents plan to increase their cash holdings to protect their portfolios.
Within equity portfolios, institutions are also changing their focus. The top three aims are to reduce public market risk (41 per cent), to increase allocations to alpha-seeking strategies (32 per cent) and to focus more on environmental, social and governance strategies and impact investing (28 per cent). Asia-Pacific respondents had the same top two priorities at 47 per cent and 33 per cent respectively, but their third biggest concern was increasing diversification and reducing home market bias (27 per cent).
The survey was conducted over a four-week period in November and early December 2018. Assets from Asia-Pacific institutions represent a quarter of the total assets owned by all survey respondents.