Institutional investors place growth hopes in illiquid assets

Major asset allocation decisions by institutional investors will see more demand for illiquid assets, according to a study.

Globally, 72% of institutional investors surveyed said they would increase their allocation to illiquid assets in 2017 and 2018, Fidelity International research showed.

Growing popularity of illiquid assets is prevalent in the UK, where 92% of those surveyed said they would increase their allocation within the next two years. This was up from 46% in 2012.

But the Fidelity Global Institutional Investor survey also found expected increases for exposure to other asset classes, such as domestic fixed income, liquid alternatives and cash. For example, 55% of global investors said they would increase to cash.

Behind these changes are investor concerns about low returns and market volatility – anxieties that have increased since 2010.

Low returns were particularly worrying for private sector pension funds, the research showed. Most others, such as insurance companies, were most worried about market volatility.

However, nearly all those surveyed believed they could still generate returns above benchmarks to meet growth objectives. On average, institutional investors are aiming to achieve a 6% annual return and the survey showed they were confident of generating 2% alpha every year, with roughly half of their excess return over the next three years coming from shorter-term decisions such as individual manager outperformance and tactical asset allocation.

Heather Fleming, head of institutional distribution for UK and Ireland at Fidelity International, said institutions were managing their portfolios more dynamically, making more investment decisions today than in the past.

“However, with increasing quantitative and qualitative influences on each investment decision, institutional investors may be about to face an information overload,” Fleming said, adding that a more disciplined investment process may help them to cope with this.

Fidelity surveyed 933 institutions in 25 countries with $21 trillion (€19.8 trillion) in investable assets.

©2016 funds europe

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