GLOBAL - Investors are still being paid quite handsomely for taking illiquidity risk three years after the onset of the global financial crisis, according to estimates from BlackRock.
Before the crisis, in 2006-7, investors demanded a mere 2.5% risk premium from assets with illiquidity terms out to around six months, a 4% premium from assets illiquid out to 18 months and a 7% premium from assets with longer-term illiquidity.
However, between mid-2008 and early 2009 those premia leapt to around 16%, 20% and 23%, respectively. Since then, while shorter-term illiquidity premia have dropped back sharply, rates remain at 13% out to 18 months and as high as 18% for the longer-term.
The estimates, based on extensive discussion with and feedback from a range of practitioners of illiquid investment strategies within and outside BlackRock, were given during a presentation on alternative investments in institutional portfolios in London on 25 May. The firm reported growing demand for alternatives of all kinds, and especially less liquid assets and strategies.
Matthew Botein, managing director and head of BlackRock Alternative Investors said: "It's been a busy time for me on the road, talking to clients."
New allocations to hedge fund strategies, for example, are coming from liquid bond and equity portfolios rather than being re-directed away from illiquid strategies. After finding themselves over-committed to real estate, infrastructure and private equity immediately following the equity market crash of late 2008 and early 2009, investors are now beginning to worry about growing under-commitment, said Botein.
"We expect a trend of re-allocation to real estate, and infrastructure is poised for very significant growth as investors seek long-dated, inflation-protected cash flows."
Marcus Sperber, managing director and head of BlackRock's international real estate business, agreed, but added that a post-crisis flight to quality has seen a wave of money allocated to core property assets.
"There is a case that there is a new bubble in core," he warned. "With that in mind we are seeking out secondary assets where there is less competition and to which we can add value, as well as real estate debt opportunities, particularly in mezzanine financing."