Illiquid alternatives set for 2017 surge among asset managers, finds survey

By Daniel Lanyon on 2nd December 2016

Equity Crowdfunding

Nearly three-quarters of institutional investors around the world say they will increase their holdings in alternative credit among other alternatives.

Illiquid alternatives set for 2017 surge among asset managers, finds survey

Global institutional investors worldwide are preparing for a rapid increase in allocations to alternatives including alternative credit over the next two years, according to the latest Fidelity Global Institutional Investor survey.

Respondents, who included 933 institutions in 25 countries with $21 trillion in investable assets under management, said they were expecting to make more asset allocation changes in the next one to two years than in 2012 and 2014,

The largest anticipated shifts are in alternative investments, domestic fixed income, and cash. Globally, 72 percent of institutional investors say they will increase their allocation of illiquid alternatives in 2017 and 2018.

The trend appears to be driven largely by the local economic realities and political uncertainties in says Scott E. Couto, president, Fidelity Institutional Asset Management.

“The U.S. is likely to see its first rate hike in 12 months, which helps to explain why many in the country are hitting the pause button when it comes to changing their asset allocation.”

“Institutions are increasingly managing their portfolios in a more dynamic manner, which means they are making more investment decisions today than they have in the past. In addition, the expectations of lower return and higher market volatility are driving more institutions into less commonly used assets, such as illiquid investments”.

“For these reasons, organizations may find value in re-examining their investment decision-making process as there may be opportunities to bring more structure and accommodate the increased number of decisions, freeing up time for other areas of portfolio management and governance.”

The top concerns for institutional investors, the survey found, are a low-return environment (28 per cent) and market volatility (27 per cent), with the survey showing that institutions are expressing more worry about capital markets than in previous years.

In 2010, 25 percent of survey respondents cited a low-return environment as a concern and 22 percent cited market volatility.

“As the geopolitical and market environments evolve, institutional investors are increasingly expressing concern about how market returns and volatility will impact their portfolios,” said Derek Young, vice chairman of Fidelity Institutional Asset Management and president of Fidelity Global Asset Allocation.

“Expectations that strengthening economies would build enough momentum to support higher interest rates and diminished volatility have not borne out, particularly in emerging Asia and Europe.”


James Levy

06 Dec 2016 11:12am

Most Alternative Credit vehicles offer a huge increase in return in exchange for small sacrifice of liquidity (montly or quarterly instead of daily). In any case, liquidity is vastly overrated in most cases, as investors tend to use this liquidity to sell at the worst possible moment during a financial panic. Furthermore, many alternative credit areas (such as invoice finance, trade finance and real estate bridge finance) have very short maturities that give the investor the benefit of self-liquidation to recover their assets in the case of market disruptions.

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