BlackRock: Significant shifts in asset allocation expected
“Large institutional investors are likely to make significant shifts in asset allocation in 2015 in response to divergent market and macro-economic trends.” a survey conducted by BlackRock among its 169 largest institutional clients, from 11 November to 1 December 2014 concludes. The poll represents $8trn (€7trn) in assets .
Mark McCombe, senior managing director and global head of BlackRock’s Institutional Client Business, comments: “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.”
He adds: “In today’s environment, we advocate proactive risk management. We believe institutional investors should also consider alternative and nontraditional asset allocations, particularly longer dated ones that allow institutions to ride out the expected near-term volatility.”
Among the trends, low rates and deflation fears in Europe as well as in Japan are highlighted by the investors surveyed.
“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.”
Investors also show appetite for real estate, real assets and flexible fixed income strategies.
“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.”
Moves in the fixed income are also to be considered as the survey points out that “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%).”
McCombe says: “The trend towards alternatives isn’t new, but what is surprising is the level of conviction institutions have 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.”
Detailing regional results, BlackRock’s survey underlines European institutions “strongly favour real asset and real estate in Europe.”
“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),” BlackRock analyses.