One in four (26 per cent) institutional investors are looking to dramatically increase allocation to illiquid assets in the next three years while, while a further 59 per cent expect allocations to increase slightly according to new research.
This latest survey found pensions funds – alongside insurance asset managers, family offices and wealth managers – are increasingly focusing on private debt as well as commercial and residential real estate. Other illiquid assets can include infrastructure and private equity.
The research, which surveyed institutional investors globally, found the primary motivation for investing in illiquid markets was the need to protect from macro uncertainty. More than half (52 per cent) of respondents cited this as the primary motivation for choosing private debt investments. Meanwhile, just under a third of investors (29 per cent) said they were investing in these assets as they offered diversification benefits.
When it came to private debt investments, one in 10 respondents identified the expanding range of assets offered within private debt strategies as the key motivation for investing. The same number aid the increased focus on ESG from the private debt markets is the main reason for their increased allocations to this asset class.
Within illiquid assets, most investors (80 per cent) favour increasing allocations to residential real estate with 43 per cent expecting to make dramatic increases. More than a third (34 per cent) say they will dramatically increase allocations to specialist areas of corporate finance including commercial aviation, shipping and trade receivables. Meanwhile about half (52 per cent) of investors say they will slightly increase their allocations to consumer credits such as student loans, while 18 per cent will make dramatic increases.
Aeon Investments head of capital markets strategies Evgeny van der Geest, Head of Capital Markets Strategies says: “The private debt markets continue to innovate and expand offering investors more bespoke solutions that can help them meet their objectives, especially when inflation is high.”