Institutional Investors Embrace Illiquid Assets; 80% of New Fund Launches In Energy Space

Institutional investors are increasingly turning to illiquid assets and active management strategies to combat macro-economic trends, anticipated market volatility and divergent monetary policy, according to a new survey by BlackRock.

BlackRock polled 174 of its largest institutional clients, which together represent more than $6.6 trillion in assets (public pension funds (25%), corporate pension funds (34%), official institutions (1%), insurers (25%), investment managers (6%), endowments and foundations (7%), and others (4%)), about their asset allocation plans following the recent market volatility. The survey found that investors are increasingly embracing illiquid assets, including private credit and real assets, as a way to meet their long-dated liabilities, rather than the traditional assets classes of stock and bonds.

It seems that the recent market volatility is driving a repricing of assets globally, allocations to equities appear to be decreasing while institutions are anticipating modest reductions to their fixed income portfolios. What's more, when asked how they plan to manage their equity exposures, 25% of respondents to BlackRock's survey said they planned on increasing their allocations to active managers. In comparison, only 16% of the sample was looking to increase index-based allocations. The largest increase in interest for institutional investors is long-dated illiquid strategies. Over half of the respondents indicated an increased allocation to private credit, followed closely by real assets (+49%), real estate (47%), and private equity (39%). Broadly speaking, the respondents to BlackRock's survey expressed demand for the return premia offered by illiquid assets.

Demand for illiquid assets in increasing

"Over the past 12 to 18 months we’ve seen the majority of the new fund launches we’re working on are focused on the credit space. Whether it’s direct lending or buying distressed companies," said Michael Minces founder of Blue River Partners, one of the US's largest compliance firms, in a telephone interview earlier this week.  He continued: