BlackRock sees strong appetite for infra

A survey by the asset manager shows institutional investors intend to reallocate to private markets, with interest in active management strategies to help mitigate market risks.

Three-fifths of large global institutional investors are expecting to increase their allocations to infrastructure and renewables in 2018, according to a survey by BlackRock.

The survey of 224 institutional investors globally, representing $7.4 trillion in assets, highlights that illiquid or real assets will be the largest beneficiary of asset flows within the private market universe. Only 2 percent of the participants, or around four to five entities, said they would decrease allocations to infrastructure.

The appetite for infrastructure surpasses that for real estate and private equity, both of which are backed by more than two-fifths of survey participants saying they would increase allocations to the asset classes.

The preference is driven by today’s low-interest-rate environments and relatively high valuations for risk assets.

BlackRock also finds that institutional investors would like to protect against downturn risks through maintaining cash levels and selectively pursuing active strategies. Around 65 percent of investors plan to keep cash allocations unchanged and the interest in active management strategies also applies to a range of alternative asset classes including illiquid assets and hedge funds, as well as in public equities, said the US fund manager.

“Despite synchronised global growth, our overall return expectations for most segments of institutional investors are well below their return targets,” said Edwin Conway, global head of BlackRock’s institutional client business.

“In the current environment of record-high asset performance, we believe that active portfolio decisions need to be taken by institutional investors this year,” said Conway. He observed that the trends of embracing alternative strategies are slowly becoming the norm for institutional investors seeking differentiated sources of return, inflation hedging and counter-cyclical investments.