85% of institutional investors to increase illiquid asset allocations over next 2 years

Written by Adam Cadle

18/07/2023

Eighty-five per cent of institutional investors will increase their allocations to illiquid assets over the next two years driven by inflation and rising interest rates, new global research published by Aeon Investments has found.

The research with 101 senior investment managers at insurance asset managers, pension funds, family officers and wealth managers with a total of $545bn AuM, found that 26% will dramatically increase allocations to illiquid assets, while 59% of respondents will increase allocations slightly. Just 3% plan to decrease their level of investment in illiquid investments.

Respondents say the primary motivation for investing in illiquid markets is the need to protect from macro uncertainty. More than half (52%) of investors say this is the primary motivation for choosing private debt investments, which have strategies that offer a floating rate coupon, offering the potential for a natural hedge against inflation.

Within illiquid assets, most investors (80%) favour increasing allocations to residential real estate with 43% expecting to make dramatic increases. Commercial real estate was also seen as a growing area of interest for 81% of respondents, with 28% saying they would increase allocations dramatically.

More than a third (34%) said they will dramatically increase allocations to specialist areas of corporate finance including commercial aviation, shipping and trade receivables.

Aeon Investments head of capital markets strategies Evgeny van der Geest said: “The private debt markets continue to innovate and expand offering investors more bespoke solutions that can help them meet their objectives, especially when inflation is high.

“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 structures. At Aeon it is a priority for us to share the same objectives as our clients.”

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