GLOBAL - Institutional investors are set to exit fixed income and move into equities, reckons BlackRock chief executive Larry Fink.
And he foresees a "big reduction" in the allocations to illiquid alternative assets because there is so much investor cash around.
"In January, probably, the equity markets are going to rally because there is so much cash sitting in the sidelines, and people are going to have to invest," Fink said in a broadcast interview.
"You are going to see a big reduction in allocation in the illiquid products, in the alternatives, and the hedge fund/private equity spaces. It's going to go back to public equities."
He told FT.com: "I think many institutions are going to be reallocating out of bonds into equities. Endowments who have such large imbalances between assets and liabilities are going to have to reallocate into public equities."
Meanwhile, there was news of the growth of a business set up the last year to help institutions shift illiquid assets.
The Bank of New York Mellon said its BNY Mellon Beta Management arm has already reached $1bn in assets under management.
The unit, launched in mid-2008, uses derivatives and futures to "to facilitate asset allocation shifts in portfolios that hold illiquid or hard-to-sell assets".
The arm's chief executive Mark Keleher said institutions are faced with allocations that do not meet their targets because equities have fallen much faster than bonds.
"Some portfolios that are designed to be 60% equities and 40% bonds have now become 50% bonds and 50% equities," he said. "However the institutions are having difficulty selling enough bonds so they can buy additional equities. By using derivatives, we can help them reach their goals."
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