A majority of institutional investors were set last year to increase allocations to alternative assets, reflecting a long-term desire for private investments that won’t be derailed by the Covid-19 crisis, according to Natixis.
Seventy-one percent of investors said the potential for higher returns from private assets makes them worth the liquidity risk, while 63 percent believe such gains justify higher fees, Natixis Investment Managers found in a survey expected to be released Tuesday. The findings are based on a global probe late last year of 500 institutional investors, including pension funds, foundations, endowments, insurance funds, and sovereign wealth funds.
“There’s still significant interest in private investments,” Dave Goodsell, executive director of Natixis’s Center for Investor Insight, said in a phone interview. He said the search for yield within alternative assets will probably increase as a result of the Federal Reserve cutting its benchmark interest rate to zero in March, a step taken as public markets were reeling from the Covid-19 pandemic.
Natixis found strong investor interest in private equity and private debt, according to Goodsell. These asset classes have become an increasingly large portion of institutional investors’ long-term strategies partly because they help diversify income streams, he said.
“It’s not the play of the day,” said Goodsell. “It’s something they’ve integrated into their long-term thinking.”
Institutional investors, which plan for an average investment horizon of 10 years, maintained a positive view of private assets after public markets dropped in the fourth quarter of 2018 and following strong performance of stocks last year, according to Goodsell. This steady appetite for alternative assets was reflected in the firm’s survey.
Natixis found that 37 percent of investors were planning to increase exposure to private debt in 2020, with 32 percent expecting allocations to remain unchanged. Twenty-eight percent of surveyed investors intended to increase their investments to private equity, while 39 percent said they would maintain their exposure.
Investors’ view of hedge funds also held relatively steady heading into 2020, with just over half of those surveyed planning to maintain or increase their allocations to the asset class. About 17 percent of investors expected to decrease their allocations to hedge funds this year, compared to about 12 percent for private equity and 7 percent for private debt.
A more recent survey of investors conducted by Preqin in April found 63 percent planned to keep their long-term alternative investment strategy, while 29 percent planned to increase allocations to alternative assets as a result of the Covid-19 crisis. But on a short-term basis, the alternative-assets data tracker found that more than half of investors planned to decrease the number and size of their new commitments this year.
“Although investors are exercising caution in the short term, many believe that Covid-19 will not have a lasting impact on their alternatives programs,” Preqin said in its report.