Frustrated by low bond yields, institutional investors are expected to make some big moves this year, moving more of their assets into real estate and other alternative investments, according to a BlackRock survey.
BlackRock polled 169 of its largest institutional clients to find that they are shifting, or considering shifts in, asset allocations based on "patchy" growth in developed economies, monetary policies that vary widely from country to country and possible deflationary actions. They're also concerned about an escalation of geopolitical tension.
"Mixed economic growth forecasts and shifting monetary policies are significant challenges for our clients. These conditions are testing investors' ability to generate sufficient returns to meet their long-term liabilities," said Mark McCombe, senior managing director and global head of BlackRock's Institutional Client Business.
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BlackRock's institutional clients, who represent some $8 trillion in assets, cited continued low interest rates as among their leading concerns. Seventy-four percent feel it unlikely that the yield on a U.S. 10-year Treasury note will top 3.5 percent in the year to come. They also aren't expecting the Fed to tighten monetary policy too much too soon; 88 percent said it was unlikely.
More than half (56 percent) are looking for deflation in Europe, although 63 percent say the European Central Bank will be able to maintain credibility with investors. Most are pessimistic about growth in China, with 69 percent predicting that it will drop below 7 percent.
These clients' investment professionals are looking toward real assets, real estate, private equity and unconstrained fixed income, with 60 percent planning to boost allocations in real assets; 50 percent anticipate adding to real estate and 47 percent to private equity allocations.
More than a quarter (26 percent) are moving away from cash, and 39 percent plan to cut allocations to fixed income. Those sticking with fixed income are transferring their interest from core and long-duration strategies in favor of unconstrained (35 percent), emerging market debt (38 percent), U.S. bank loans (33 percent) and securitized assets (23 percent).
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