Private equity and credit strategies are set to continue to dominate asset mandates for the next 12 to 24 months, according to a survey of outsourced chief investment officer providers with more than $660 billion in assets under advisement.
The survey was conducted by Vidrio Financial in association with data provider AW Research and released on Dec. 15.
Specifically, more than half (55%) of surveyed respondents said that private equity was the most likely choice for new allocations, with another 33% looking at credit strategies, such as distressed debt, as offering greater opportunities over the next 12 to 24 months.
The remaining 12% favored real estate, hedge funds and fixed income.
With respect to private equity, the majority of OCIOs said that their clients' long-term investment horizons have warranted greater reliance on less-liquid alternative investment strategies like private equity.
Nonprofit endowments and foundation investors typically have higher return objectives to support spending on private equity. The perpetual time horizon allows clients to lock up capital for five to 15 years, Vidrio added.
Credit is now offering the best risk-adjusted returns with the least amount of uncertainty, according to a surveyed firm that primarily works with pension funds.
The survey also found that liquidity constraints (44% of respondents) posed the biggest risk to successful portfolio construction, followed market volatility (22%), access to managers (22%) and market uncertainty (12%).
The survey also found that the majority of OCIOs (78%) said endowments and foundations comprised the majority of their client base. The remaining 22% of respondents counted pension funds and family offices as being their dominant clients.
As to why clients pick the OCIO model in favor of hiring internal staff or hiring a traditional investment consultant, some 44% responded that non-profits need help managing increasingly complex portfolios complexity, while 34% said the top reason was to improve governance. The other 22% said such choices were made in order to streamline investment operations.
The survey was conducted from August through October 2023.
