Nearly 70% of Asian institutional investors said they are considering increasing alternative investments, the survey findings show. In addition, 74% of investors in the region believe the potential returns of alternatives offset illiquidity concerns.
Globally, institutional investors said they will increase allocation to alternatives and equities in 2017, and will reduce fixed-income holdings, the survey findings show.
Source: Natixis
The report said that institutions have found it difficult to find yield in recent years, and therefore intend to give alternative investments more consideration when constructing the portfolio.
“As institutions grapple with interest rate concerns, many are turning to alternatives to play the ballast role traditionally filled by bonds. Three in four say that increased use of alternatives can be an effective tool to help diversify portfolio risk,” the survey said.
According to the survey, market volatility is perceived to be the greatest risk for Asian institutional investors, followed by interest rates and geopolitical risk.
Biggest risk to investment performance in 2017
|
Risk |
Asia |
Europe |
UK |
North America |
Overall |
|
Market volatility |
63% |
51% |
55% |
54% |
50% |
|
Geopolitical risk |
39% |
44% |
43% |
47% |
43% |
|
Interest rates |
34% |
32% |
38% |
34% |
38% |
Source: Natixis
The survey included 500 managers of public and corporate pensions, foundations, endowments, insurance funds and sovereign wealth funds in North America, Latin America, the UK, Europe, Asia and the MIddle East. Collectively, they manage $15.5 trn in assets.
Private debt vs private equity
Between private debt and private equity, a slightly higher proportion of Asian institutional investors believe private debt provides better diversification than traditional fixed income investments (63%) compared with those who believe private equity provides better diversification than traditional asset classes (51%).
Nevertheless, around 71% of them are generally satisfied with the performance in private equity investments in their portfolio, which is slightly more than the 69% who are satisfied with the performance of private debt.
The survey added that more institutional investors in the region invest in infrastructure projects (81%) than their global peers (76%).
Both the private equity and debt markets globally have continued to rise for more than a decade. Private equity AUM rose by 8.5% year-on-year in 2016 to around $2.5trn, while private debt rose by 14.6% to around $500bn, according to a McKinsey & Company review on private markets.
In total, assets in private equity markets, which include private equity, private debt, real estate, natural resources and infrastructure, stood at $4.7trn, according to McKinsey.
Source: McKinsey
