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How Institutional Investors are Preparing for a Downturn

See where institutions plan to invest—and where they don’t—for 2019.

The investing landscape has changed. Volatility is back in a big way. The longest bull market on record has slowed its stampede. According to BlackRock, institutional investors, like pension and sovereign wealth funds, are concerned about a potential economic downturn. In response, they plan to shift their asset allocations toward private markets.

The chart below shows where institutions plan to increase investments in 2019.

Source: "2019 Global Institutional Rebalancing," BlackRock, January, 2019.

Institutions aren't the only ones thinking about how to navigate this new normal. Advisors and their clients have concerns of their own. Of course, the average investor has very different investment goals and liquidity concerns than a massive pension fund. But it can be insightful to see how the biggest players are thinking about the markets.

BlackRock's data comes from a global survey of 230 of its largest institutional clients, representing more than U.S. $7 trillion in assets. They conducted their annual survey in November and December 2018.

The largest group of respondents (41 percent) cited reducing public market risk as their single biggest concern. So the planned flight to private markets is no surprise. Asset classes with the biggest planned influx include real assets (infrastructure, etc.), private equity and real estate.

What does this mean for advisors and their clients? That depends on their individual investment goals and appetite for liquidity. But if diversification beyond public markets is among their concerns, non-traded alternatives may be worth considering.

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