More German institutional investors are planning to allocate to private debt in the coming years, with the corporate segment poised to attract the most first-time buyers, according to a survey conducted by the country’s association for alternative investments BAI.
According to the survey, 18% of respondents plan to enter the corporate private debt over the next three years, 16% infrastructure debt, and 8% real estate debt.
Credit specialities (7%) such as insurance-linked securities and infrastructure equity (9%) are also expected to grow further in the next few years.
“Compared to last year’s survey it becomes even more apparent that investor are increasingly willing to invest in private debt vehicles,” said the BAI.
Private equity investments in corporates, infrastructure, and real estate are an integral part of more than three quarters of surveyed investors’ portfolios, while half of the respondents diversify their portfolios with corporate private debt, real estate debt, and infrastructure debt investments.
About 12% of investors surveyed withdrew completely from hedge funds in the last three years, with public perception and performance problems having been cited in last year’s survey, while 8% pulled out of liquid alternatives.
BAI surveyed 77 institutional investors in Germany with assets under management worth €1.3trn. Of the respondents, 36% are insurance companies, 27% are Pensionsfonds and 16% Pensionskassen. Other investors surveyed include banks, family offices, and foundations.
Some 37% of participants, mainly insurance companies and pension funds, stated they had assets under management between €10-50bn.
BAI noted that the volatility triggered by COVID-19 in equity markets may be a further driver for investments in alternative asset classes, in particular real assets.
It expects German institutional investors to expand their exposure to alternative investments from the current average of 22% to 26% in the next three to five years. This corresponds to an estimated growth rate per year from 3% to 6% during the period.
Investors’ average 22% alternatives allocation includes real estate equity which takes the top spot in portfolios (9%), followed by corporate private equity and infrastructure equity (each 3%).
Pension funds allocate in particular to corporate private equity, infrastructure equity and real estate equity.
According to the survey, German institutional investors tend to deploy capital to alternatives to diversify their asset mix (96% of respondents), for good risk/return ratio (85%) and to fend off the consequences on returns of the low interest rate (75%).
BAI also noted that investor demand for co-investments had shown significant growth and was particularly widespread within private equity.
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