In a survey BlackRock conducted in November and December, 25% of institutional investors globally said they would decrease cash allocations this year, about twice as many as planned to increase their cash holdings.
Real assets, including infrastructure, commodities, timber, farmland and the like, will be the big beneficiaries of institutional asset flows in 2017, the poll found.
BlackRock said that over the last three years, its survey has shown that institutional clients are increasingly shifting into less liquid assets, a trend that has continued this year.
“The recent equities rally has been more than offset by years of low rates and many institutions are still suffering from underfunding,” Edwin Conway, the firm’s global head of the institutional client business, said in a statement.
Conway said investors had been challenged by global equities’ underperformance and negative fixed income returns in the past year. He said reflation is set to take root this year and could be the catalyst institutions have needed to rethink their cash allocations and views on risk.
“The tide of institutional investor interest in less liquid assets is turning into a wave, with a significant uptick in allocations anticipated as they seek alternative ways to generate returns and income,” he said.
Survey participants, 240 of BlackRock’s biggest institutional investors, represented $8 trillion in assets.
Fifty-eight percent of investors surveyed said they expected to raise their allocations to real assets in 2017, compared with 49% who said this in last year’s poll.
Investors across all regions were found to plan increases to real assets in 2017:
- Continental Europe, 69%, and the U.K., 63%
- Asia/Pacific, 63%
- U.S. and Canada, 53%
- Latin America, 36%
Real estate also is likely to see significant interest, with 38% of investors globally looking to increase allocations to the asset class. The most significant increases are expected in Asia/Pacific and Continental Europe.
The outlook for private equity flows is also positive, with 35% across all regions planning to increase their holdings.
“Institutional investors are recognizing that they need to do something different to get the investment outcomes they want,” Conway said. “They are increasingly seeking alternative income, and are embracing less liquid strategies to enhance returns.”