Half of institutional investors seek to increase private debt exposure – BlackRock

More than half of investors are looking to increase their exposure to private credit in 2019, according to a survey of BlackRock’s institutional clients.

Amid a broader shift toward private markets, BlackRock’s survey of 230 institutional clients, representing more than $7 trillion of assets, found that private debt is set to benefit the most from reallocation of fixed income portfolios this year.

It found 56 percent of global respondents are looking to increase their allocation to the asset class, with 6 percent saying they would increase their allocation by 5 percent or more. By contrast, high-yield allocations are likely to fall, with 24 percent saying they will reduce exposure to high-yield bonds, while just 16 percent are looking to increase allocations.

The trend is even more pronounced when looking at insurance company clients, with 72 percent looking to increase their private debt exposure and 41 percent looking for more securitized lending.

Other private markets are also benefiting from perceived weakness in public equity markets, which have seen losses and high volatility throughout 2018. BlackRock found 54 percent of clients want to increase real assets exposure, 47 percent are looking for more private equity and 40 percent will allocate more to real estate.

Corporate pensions are also de-risking and allocating more capital to fixed income, the survey found. Six in 10 corporate pension funds are looking to decrease their equity exposure and 48 percent want to invest more into fixed income products. This was particularly pronounced among US and Canadian pension funds, with 67 percent looking to increase their fixed income exposure.

“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. “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.”