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Institutional Investors Batten Down the Hatches

A survey of institutions overseeing $7 trillion shows investors positioning for a downturn.

Institutional investors representing more than $7 trillion plan to pull money from public equities amid concerns the bull market is ending, according to a client survey released Monday by BlackRock.

A majority of the 230 investors surveyed globally said they intended to decrease their stock market exposures over the course of 2019, while just 14 percent planned to up their equities investments. Fifty-six percent of respondents attributed their anticipated asset allocation changes to the possibility of the economic cycle turning, including 37 percent who cited a downturn as the most important market risk facing their portfolios in 2019.

The 2019 survey marks a sharp increase in risk-off sentiment compared to last year, when 35 percent of respondents planned to reduce allocations to equities. This year, investors said their biggest priorities for their equities portfolios were reducing public market equity risk and shifting money to alpha-seeking equities strategies. 

“In a world of increased market volatility and greater levels of uncertainty, clients are reimagining what they do with their risk assets,” Edwin Conway, global head of BlackRock’s institutional client business, said in a statement on the report. “We’re seeing clients becoming more purposeful about their alpha exposures going forward.”

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Alongside the possibility of the market turning, the primary concerns driving portfolio-wide asset allocation were ongoing trade tensions, rising U.S. interest rates, and fears of a prolonged equity market sell-off. Investors polled by BlackRock indicated that they would shore up their portfolios by shifting assets to private market alternatives like private equity and real estate, with 54 percent targeting increased investments in real assets.

About 38 percent planned to allocate more money to fixed income, with the majority eyeing higher allocations to private credit. Emerging market debt, securitized assets, and short-duration bonds also emerged as popular choices within fixed income, which BlackRock said was “likely reflecting relative value opportunities in these asset classes.”

Some of the shift away from public equities was driven by corporate pension respondents, who made up 33 percent of the investors in the survey. According to BlackRock, these respondents will continue to de-risk their portfolios in 2019, with 60 percent intending to pull money from equities and 48 percent planning increased allocations to fixed income. Corporate pensions were also among the respondents targeting new investments in private markets: 36 percent planned to make new commitments to private equity, while 47 percent aimed to grow their real assets portfolios.

Another group planning a shift toward private assets was insurance companies, which made up a fifth of the survey’s respondents. Two-thirds of the insurers surveyed by BlackRock intended to up their allocations to real assets, and nearly three-quarters targeted greater investment in private credit.

Other participants in the survey included public pensions (28 percent of respondents), Taft-Hartley plans and unions (6 percent), asset managers (5 percent), endowments and foundations (3 percent), family offices (3 percent), and other “official” institutions (2 percent).

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