As institutional investors intend to reduce public stocks, where are they looking?

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With concerns the business cycle is about to turn, more than half of institutional investors are reporting the intention to reduce their allocations to equities, according to a new BlackRock survey.

Fifty-one per cent of BlackRock institutional clients surveyed stated they plan to decrease their allocations to public equity markets this year, up from 35 per cent in 2018. Canadian and U.S. institutional investors are at the forefront of the trend with 68 per cent noting their plans to reduce on equities, whereas just 27 per cent those in continental Europe said the same.

Private markets, the survey found, are one of the places institutional investors are looking for the year ahead, with 54 per cent noting they intend to increase exposure to real assets, 47 per cent to private equity and 40 to real estate.

When looking at pension plans specifically, the survey found corporate pensions globally are continuing to de-risk, with 60 per cent reporting they intend to decrease equity allocations and 48 per cent planning to increase fixed income. This trend is most evident in the U.S. and Canada, with 77 per cent reporting they intend to decrease equities and 67 per cent reporting the intention to increase fixed income.

“The move into fixed income is especially pronounced for corporate pensions, as many defined benefit plans are focused on de-risking, locking in improvements to funded status and preparing for an end-game,” said Conway.

Corporate pensions globally also plan illiquid increases including real assets, real estate and private equity, the survey found.

“As the economic cycle turns, we believe that private markets can help clients navigate this more challenging environment,” said Edwin Conway, global head of BlackRock’s institutional client business, in a press release. “We have been emphasizing the potential of alternatives to boost returns and improve diversification for some time, so we’re not surprised to see clients increasing allocations to illiquid assets, including private credit.”

Among the moves in equites, other trends emerged for the asset class, the survey found. A third, (32 per cent) said they intend to increase allocations to alpha-seeking strategies and 28 per cent said they will focus further on environmental, social and governance and impact investing.

“In a world of increased market volatility and great levels of uncertainty, clients are reimagining what they do with their risk assets,” said Conway. “It’s important for clients to stay invested, with equities continuing to have a very significant role in portfolios and alpha seeking-strategies making particular sense in the current climate. We’re seeing clients becoming more purposeful about their alpha exposures going forward.”

 

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