2019 Global Institutional Rebalancing Survey

Jan 14, 2019
By BlackRock

230 institutional clients, representing over $7 trillion in investible assets, participated in our annual institutional client rebalancing survey. We surveyed clients over a four-week period in November and early December to explore how they plan to rebalance assets in 2019. Here are the results.

Institutional trends in asset allocation

  • Globally, investors are concerned that the economic cycle is turning. 56% of clients stated that the possibility of the cycle turning is either the first (37%) or second (19%) most important macro risk influencing their rebalancing and asset allocation plans.
  • Concern about the economic cycle is reflected in the fact that 51% of clients intend to decrease their allocation to equities. This shift is accelerating as 35% planned reductions in 2018 and 29% in 2017. Heading into 2019, this trend is most pronounced in the U.S. and Canada, where 68% of clients plan to reduce equity allocations, versus just 27% in Continental Europe.
  • While the global trend is to reduce equity exposures, within equity portfolios, institutions are shifting their focus and priorities. Respondents are most focused on reducing public market risk within the equity portfolio (41% cited this as one of their top two priorities), but around one-third plan to increase allocations to alpha-seeking strategies (+32%). An increasing emphasis on ESG and impact investing was cited by 27% of respondents, largely driven by EMEA clients (+55%).
  • A significant portion of institutions intend to increase their exposure private markets: real assets (+54%), private equity (+47%) and real estate (+40%). This continues a multi-year structural trend of clients reallocating risk in search of uncorrelated sources of return.
  • Macro and market influences shaping asset allocation decisions reflect key regional differences. A majority (52%) of U.S. and Canada respondents are concerned about rising U.S. interest rates, while 46% of EMEA institutions and 40% of Asia Pacific institutions cited geopolitical instability/trade tensions as one of the top two macro risks (vs. only 20% of U.S. and Canada clients).
  • Within fixed income, the shift to private credit continues as 56% of global respondents plan to increase their allocations. Other fixed income focus areas for 2019 likely reflect relative value opportunities in the current market: short duration (+30%); securitized assets (+27%); emerging markets (+29%).
  • The majority of clients plan to leave cash unchanged, though there is a slight trend toward increasing cash balances (20% increasing versus 15% decreasing). Regional differences are stark – in Asia Pacific 33% plan to increase cash and in Continental Europe 27% plan to reduce.
  • Corporate pensions globally continue to de-risk; 60% intend to decrease equity allocations and 48% plan to increase fixed income. This trend is most pronounced in the US and Canada (77% intend to decrease equities and 67% to increase fixed income. Corporate pensions globally also plan illiquid increases — real assets (+47%), real estate (+35%) and private equity (+36%) — likely to bolster their growth portfolios.
  • Insurers continue to seek alternative sources of income by increasing allocations to illiquid assets and credit strategies; 66% intend to increase allocations to real assets. Within fixed income, 72% plan to increase their allocations to private credit and 41% plan to increase securitized assets.

Portfolio allocation

Net percentages represent a net percentage intending to increase or decrease allocations to each asset class. (Calculation: % of firms intending to increase - % of firms intending to decrease). Base sizes: Total (230); Equities (225); Fixed Income (230); Hedge Funds (133); Private equity (188); Real Estate (203); Real Assets (173); Cash (223). Total US and Canada (88); Fixed Income (88); Hedge Funds (55); Private Equity (72); Real Estate (77); Real Assets (68); Cash (84). Total EMEA (86); Equities (84); Fixed Income (86); Hedge Funds (42); Private Equity (71); Real Estate (82); Real Assets (67); Cash (83). Total Continental Europe (65); Equities (63); Fixed Income (65); Hedge Funds (32); Private Equity (54); Real Estate (63); Real Assets (52); Cash (64). Total Global Insurance (47); Equities (43); Fixed Income (47); Hedge Funds (20); Private equity (42); Real Estate (46); Real Assets (35); Cash (46). Total Global Corporate Pension (76); Equities (75); Fixed Income (76); Hedge Funds (48); Private equity (60); Real Estate (63); Real Assets (55); Cash (73).

As of December 2018. For illustrative purposes only. The figures/net change represented in percentages is illustrative in nature and do not express a forecast. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. No analysis of their suitability was conducted and no statement of opinion in relation to their suitability is provided.

Fixed income

Net percentages represent a net percentage intending to increase or decrease allocations to each asset class. (Calculation: % of firms intending to increase - % of firms intending to decrease). Base sizes: Total (230); Core/Core plus (196); Emerging Markets (186); High Yield (183); Long Duration (197); Securitized Assets (154); Short Duration (184); Unconstrained (135); US Bank Loans (137); Private Credit (160). Total US and Canada (88); Core/Core Plus (76); Emerging Markets (68); High Yield (69); Long Duration (69); Securitized Assets (57); Short Duration (61); Unconstrained (53); US Bank Loans (60); Private Credit (58). Total EMEA 86); Core/Core Plus (73); Emerging Markets (68); High Yield (69); Long Duration (75); Securitized Assets (51); Short Duration (72); Unconstrained (49); US Bank Loans (43); Private Credit (61). Total Continental Europe (65); Core/Core Plus (61); Emerging Markets (53); High Yield (53); Long Duration (55); Securitized Assets (37); Short Duration (55); Unconstrained (37); US Bank Loans (32); Private Credit (47). Total Global Insurance (47); Core/Core plus (44); Emerging Markets (40); High Yield (42); Long Duration (41); Securitized Assets (34); Short Duration (40); Unconstrained (22); US Bank Loans (27), Private Credit (36). Total Global Corporate Pension (76); Core/Core plus (55); Emerging Markets (55); High Yield (54); Long Duration (70); Securitized Assets (47); Short Duration (57); Unconstrained (38); US Bank Loans (46), Private Credit (48).

As of December 2018. For illustrative purposes only. The figures/net change represented in percentages is illustrative in nature and do not express a forecast. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. No analysis of their suitability was conducted and no statement of opinion in relation to their suitability is provided.

Important notes about the survey:

We asked clients where they are likely to increase and decrease their allocations, but not how they would reallocate from one asset class to another. Specifically, we asked 230 Institutional clients how likely they are to increase (significantly or slightly), decrease (significantly or slightly), or leave their holdings unchanged in 2019 across seven different asset classes and nine areas within their fixed income portfolios. If a client didn’t have exposure to a particular holding, they were excluded from the question. For some regions and specific client groups, we did not achieve enough responses to show the data on its own, as then sample size is too small and not statistically reliable. The results, however, have been included in the global summary. Survey results for 2018 can be provided upon request.