Nearly three-quarters of institutional investors will increase their allocations to private debt and structured credit in the next 12 months as they respond to challenging economic conditions, research indicates.
Aeon Investments, a credit-focused investment company, said just under a quarter (24%) of investors surveyed will increase allocations to private debt “dramatically” in the next year, while half said they would “slightly” increase allocations.
Three main reasons for larger holdings in private debt were an improved regulatory environment, followed by more choice for investors and greater market innovation; and finally, attractive yields and “increasingly appealing” risk-adjusted returns.
Some 16% said they would keep allocations the same, and 9% plan to decrease their holdings.
The research – drawn from 101 senior investment managers across Europe, the Middle East and the US – also found that 22% of respondents will “dramatically” increase investment in structured credit, while 49% will make slight increases over the next 12 months. Only 3% planned to decrease investments.
The research was carried out in April but published this week and also found the outlook is similar over a three-year horizon, according to the firm.
A further finding was that almost all (94%) of the respondents saw that credit offers a “compelling investment case in an absolute sense” during the current economic downturn. This is due to “attractive returns when equities are in decline”, the firm said.
Evgeny van der Geest, head of capital markets strategies at Aeon Investments, said: “The survey shows that investors are aware of the multiple benefits from investing in structured credit and private debt markets, particularly given the current challenging economic conditions. It is clear fixed income plays an important role in helping investors achieve attractive risk-adjusted returns while also meeting sustainable investment goals.”
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