Pension Funds and Other Institutional Investors Plan to Reduce Their Exposure to Fixed Income

With inflation rising and interest rates increasing, the outlook for some traditional fixed income markets remains poor. New research from Aeon Investments, the London based credit-focused investment company, reveals that because of this over the next 18 months 78% of pension funds and other institutional investors plan to reduce their exposure to traditional fixed income assets.

In a survey published today of pension funds and other institutional investors in Europe and the US who collectively have around $437 billion in assets under management, 19% said they expect to reduce their exposure to traditional fixed income assets by up to 10%.  Some 46% said they would cut it by between 10% and 15%, and 13% said they would reduce it by more than this.  Only one in five professional investors interviewed (20%) said they expect to increase their exposure.

In terms of where they will reallocate this capital, 73% of respondents said that at least 25% would go into equities.  Some 55% said they would allocate this amount to private equity, and the same said this for real estate.  Half (51%) said that at least 25% of the funds they plan to take out of traditional fixed income assets would be allocated to structured credit focused investments.

Oumar Diallo, Chief Executive Officer, Aeon Investments said:

“The traditional fixed income market has endured a difficult period and many investors clearly feel this is set to continue with rising inflation and interest rates set to increase.

“In the past 18 months, our research shows 88% of pension funds and other institutional investors cut their allocation to traditional fixed income assets, and our findings suggest the majority plan to make further cuts over the next year and a half.

“One investment area that has benefited from this is structured credit focusing on assets such as transportation, infrastructure, real estate and private debt.  Investment vehicles here can deliver attractive returns on a risk-adjusted basis with lower levels of correlation to risk assets when compared to many traditional fixed income assets.”