Illiquid assets in higher demand from institutional investors
The popularity of illiquid assets has spiked in recent years, and more institutional investors than ever are looking to put money in the asset class.
Illiquid assets cover a range of investments that can’t be quickly and easily sold or exchanged for their market value, such as infrastructure or stock in unlisted companies.
The asset class has boomed in recent years, especially as it has become more accessible to retail investors through new instruments that lower barriers to entry.
Now, 78 per cent of institutional investors and wealth managers have said they are planning to increase their allocation to illiquid assets over the next five years, with 10 per cent making “dramatic increases”.
This compares to just 10 per cent planning to cut their allocation to the assets, while 11 per cent said they would keep their allocation the same, according to a survey from Managing Partners Group.
Current allocations to illiquid assets for those investors surveyed were typically between 11 per cent and 25 per cent, with 60 per cent of respondents falling into this range.
16 per cent say they invest between 25 per cent and 50 per cent of their portfolios in illiquid assets while just under a quarter of investors have under 10 per cent dedicated to illiquids.
Meanwhile, when asked what level of risk premium was needed for investor to pursue illiquid assets, half said 1.5 to two per cent, while 18 per cent said between two to 2.5 or one to 1.5 per cent. Only 13 per cent said below one per cent.
Jeremy Leach, CEO of Managing Partners Group, commented: “Investors increasingly appreciate the long-term return potential from holding illiquid assets in their portfolio.
“Investing in Life Settlement funds, for example, which are life insurance policies that have been sold by the original owners at a discount to their fixed maturity value and are institutionally traded through a highly regulated secondary market, offer the opportunity for consistent outperformance as well as helping to diversify portfolios.”