Large institutional investors are maintaining cash levels and selectively increasing allocations to active strategies to mitigate downturn risks, according to a new survey by BlackRock.
BlackRock surveyed 224 of its global institutional clients representing more than $7 trillion in assets in November and December.
While 65% of BlackRock's large institutional clients plan to leave cash allocations unchanged for the year ahead, the survey shows an interest in active management, which is expected to play out across alternatives such as illiquid assets and hedge funds, as well as within public equities.
Illiquid or real assets remain the frontrunner within private markets for investors and are expected to be the biggest recipient of asset inflows. Sixty percent of global institutional investors are expecting to increase allocations to infrastructure and renewables.
BlackRock's survey shows that 42% of institutions plan to increase allocations to real estate, while 43% are looking to increase allocations to private equity. Meanwhile, only 9% of respondents said they plan to decrease allocations to real estate, while 10% said they plan to reduce allocations to private equity.
Hedge funds are also coming back in favor with investors, who have shifted from an intended decrease in 2017 to an anticipated increase in 2018. Of those surveyed, 20% plan to increase allocations to hedge funds, while 65% plan to keep allocations the same and 15% plan to reduce exposure. According to the survey BlackRock conducted in 2016, a net 22% of corporate pension funds said they had plans to decrease allocations to hedge funds in 2017, especially in the U.K. and the U.S., and moving toward long-duration bonds.
Despite an anticipated overall decrease in equity allocations, 24% of institutions expect to shift allocations to active management relative to passive investments, while 16% intend to do the opposite.
Alternative forms of credit, such as private credit, remain attractive to investors, with 58% of respondents looking to increase allocations as they continue to seek yield.
Emerging markets debt strategies are also becoming attractive to institutional investors, with 37% looking to increase allocations in that area.
Of the 224 respondents, 33% were corporate pension plans, 31% insurers, 18% public pension plans, 6% investment managers, 4% endowments and foundations, 4% other and 4% official institutions.