NEW YORK & LONDON & HONG KONG & TORONTO--(BUSINESS WIRE)--
Large institutional investors are likely to make significant shifts in
asset allocation in 2015 in response to divergent market and
macro-economic trends, a new BlackRock survey has found.
The poll of 169 of BlackRock’s largest institutional clients
representing $8 trillion in assets, found these investors are focused on
growth rates in developed economies, divergent monetary policies and the
potential for deflation. As a result, respondents predicted significant
moves in their portfolios towards alternative investments and less
traditional fixed income strategies that aim to provide returns across
varying market conditions. Senior investment professionals at the
surveyed institutions also expressed concerns about escalating
geo-political tensions.
“Mixed economic growth forecasts and shifting monetary policies are
significant challenges for our clients. These conditions are testing
investors’ ability to generate sufficient returns to meet their
long-term liabilities,” commented Mark McCombe, Senior Managing Director
and Global Head of BlackRock’s Institutional Client Business. “In
today’s environment, we advocate proactive risk management. We believe
institutional investors should also consider alternative and
non-traditional asset allocations, particularly longer dated ones that
allow institutions to ride out the expected near-term volatility.”
Low rates, deflation fears in Europe and Japan
Investors are challenged by historically low interest rates and patchy
economic growth in many developed economies, although they retain near
universal confidence in central bank policy, according to the survey.
Investors are anticipating continued low rates with 74% believing it was
unlikely the US 10-year Treasury note would rise above a 3.5% yield over
the next year, while 88% also believe it is unlikely the Fed will
tighten too much too soon. Meanwhile, 56% believe Europe will likely
enter a deflationary regime. However, 63% believe that the European
Central Bank will maintain its credibility with investors. More than
two-thirds of respondents (69%) believe China’s growth will dip below 7%.
Real estate, real assets and flexible fixed income strategies favoured
Senior investment professionals expressed increased appetite for
allocations to real assets, real estate, private equity and
unconstrained fixed income. Six in 10 anticipate increasing allocations
to real assets and approximately half plan to add to real estate (50%)
and private equity (47%). Conversely, more than a quarter (26%)
anticipate decreasing allocations to cash and 39% will decrease
investment in fixed income. Fixed income portfolios are also changing,
as many investors are moving out of core and long duration strategies
while increasing allocations to unconstrained (35%), emerging market
debt (38%), US bank loans (33%) and securitised assets (23%).
Mr. McCombe added: “The trend towards alternatives isn’t new, but what
is surprising is the level of conviction institutions towards physical
assets like real estate and infrastructure. We believe many institutions
are structurally under-invested in real assets, and it is great to see
they are more bullish on these strategies than they were 12 months ago.
The moves in fixed income are also significant and highlight the
importance of manager selection and mandate flexibility in a time of
yield scarcity.”
REGIONAL RESULTS
European institutions strongly favour real assets and real estate
In Europe, senior investors were even more bullish on real assets and
real estate. 69% anticipate increasing allocations to real assets
against 2% saying they would decrease allocations, while 66% plan to add
to real estate versus 9% who said they would decrease allocations. 36%
intend to increase allocations to private equity against 14% who would
decrease, while contrary to the global trend a net 9% said they would
increase allocations to public equities (40% to increase versus 31% to
decrease).
In fixed income, European institutions again demonstrated high
convictions regarding moving out of core and long duration investments
into unconstrained 47% increase, emerging market debt (44%) and US bank
loan strategies (47%).
Asia-Pacific institutions allocation changes in line with global
investors
In Asia Pacific, institutions are showing similar appetites for
increasing allocations in real assets (64%), real estate (54%) and
private equity (43%) as their global peers while 44% of them anticipate
moving out of fixed income. Within fixed income, allocations to high
yield and long duration are expected to decrease, with unconstrained
(41%), emerging markets (38%) and short duration (32%) gaining favour.
US and Canada institutions pare equity and cash exposure and add
to alternatives
US and Canada respondents’ reactions to the sustained bull market in
equities were to reduce their exposure with 39% indicating they would
decrease equity allocations. Additionally, 20% of respondents in this
region are planning on reducing cash holdings. As with their
counterparts around the world, alternative strategies and assets are
attracting interest, with more than a third of the respondents saying
they would increase investment in private equity (46%), real estate
(34%) and real assets (53%).
About the survey
From November 11 to December 1, 2014, BlackRock conducted a global
survey of 169 of its largest institutional clients, including public
pensions (34%), corporate pensions (21%), official institutions (2%),
insurers (29%), investment managers (7%), endowments and foundations
(2%), and others (5%). In terms of geographic distribution, 40 per cent
of the respondents were located in North America, 29 per cent in Europe,
the Middle East and Africa, 20 per cent in Asia-Pacific, and 11 per cent
in South America.
About BlackRock
BlackRock is a leader in investment management, risk management and
advisory services for institutional and retail clients worldwide. At
December 31, 2014, BlackRock’s AUM was $4.652 trillion. BlackRock helps
clients meet their goals and overcome challenges with a range of
products that include separate accounts, mutual funds, iShares®
(exchange-traded funds), and other pooled investment vehicles. BlackRock
also offers risk management, advisory and enterprise investment system
services to a broad base of institutional investors through BlackRock
Solutions®. Headquartered in New York City, as of December 31, 2014, the
firm had approximately 12,200 employees in more than 30 countries and a
major presence in key global markets, including North and South America,
Europe, Asia, Australia, the Middle East and Africa. For additional
information, please visit the company’s website at www.blackrock.com
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BlackRock
Ed Sweeney, 646-231-0268
Ed.Sweeney@BlackRock.com
or
Stephen
White, +44-207-743-1299
Stephen.White@BlackRock.com
Source: BlackRock