Investors look to navigate market uncertainty in 2020, according to BlackRock’s annual institutional client survey
Entering 2020, institutional investors in BlackRock’s global rebalancing survey stated that their biggest concerns were the possibility of the economic cycle turning, declining global interest rates, and geopolitical instability.
When weighing the effects of lower rates with the risks of decreased growth and increased geopolitical tensions, investors see private markets as the asset class most suited to the current environment. And wherever they are investing, institutions increasingly view environmental, social and governance (ESG) factors as critical to their investment processes. Recent events underscore the importance of these long-term trends as investors confront rapidly evolving macroeconomic and investment risks.
These were the dominant themes in BlackRock’s annual Institutional Client Survey, which covered 271 institutional clients, representing over US $9.8 trillion in investible assets globally.
The survey results point to an ongoing shift from public to private markets that echoes the findings from the previous year. More than half (55 per cent) of respondents stated that they intend to increase allocations to real assets, with 49 per cent planning to boost real estate exposure and 46 per cent looking to raise private equity allocations. On a global scale, private credit will remain a core focus within fixed income portfolios over the next year, with more than half (53 per cent) of global interviewees intending to increase allocations to the sector.
When asked about challenges in allocating capital to private markets, a quarter of respondents (24 per cent) pointed to a lack of attractive valuations, while only 15 per cent said they faced no challenges in deploying capital to private markets.
Mark McCombe, Chief Client Officer at BlackRock, says: “Understanding clients’ whole portfolios and the interplay between their current asset allocation and long-term goals leads to better investment outcomes. The survey results show that clients are looking to build resilience into their portfolios by increasing their allocations to less correlated exposures. This approach can help deliver robust long-term returns, and it may provide ballast against equity market shocks, such as the one driven by the recent spread of the coronavirus.”
ESG investing is now mainstream and looks set for further growth. Globally, 66 per cent of clients stated that they are already including ESG considerations as part of their investment process, while two-fifths (38 per cent) of those not already doing so are exploring ways to embed these factors into their allocations.
In EMEA nearly all (91 per cent) respondents are already implementing ESG, while in the US and Canada just under half (46 per cent) are doing so. Among those that are not currently utilising ESG considerations in their investment processes, 32 per cent cited concerns about compromised returns and 20 per cent cited a lack of expertise in the field as the restraining factors.
Mark McCombe adds: “As institutions become aware of growing sustainability-related risks, particularly climate change, and their effects on investment outcomes, we believe this will continue to be a driving force in asset allocation shifts in the years ahead.”