A survey by Aeon Investments reveals that 85% of institutional investors plan to increase their investments in illiquid assets over the next two years.
Inflation and rising interest rates are driving this decision. Of the respondents, 26% will significantly increase their allocations, while 59% will make slight increases. Only 3% plan to reduce their investments, and 12% will maintain current allocations.
Investment managers from various countries cited the need to protect against macro uncertainty as the primary motivation for investing in illiquid markets. Over half of the respondents favored private debt investments for their potential to hedge against inflation through floating rate coupons.
Private debt and fixed income are dominant in impact investing. Diversification benefits were considered crucial by 29% of investors, while 10% highlighted the expanding asset range as a motivating factor. ESG focus also played a significant role in increasing allocations to private debt.
Within illiquid assets, commercial real estate attracted 81% of respondents, residential real estate was favoured by 80%, and consumer credits like student loans saw slight increases. Specialist areas of corporate finance, including commercial aviation and shipping, were targeted for significant increases by 34% of investors.
Looking ahead, the survey found that investors expect improved customisation of private debt strategies. They also emphasised the importance of financial institutions co-investing in their vehicles with aligned risk profiles and fee structures.
Evgeny van der Geest, head of capital markets strategies at Aeon Investments, remarked: “Private debt markets continue to offer investors bespoke solutions that can help them meet their objectives amid high inflation. It makes sense that investors want their private debt managers to align their interests by co-investing in the underlying vehicles with the same risks and fee structure.”
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