Aeon Investments: Pension funds protect against inflation with illiquid assets

July 18, 2023

Institutional investors massively favour increasing allocations to residential real estate to protect against inflation.

A recent study among pension funds, insurance asset managers, family offices  and wealth managers who collectively manage around $545 billion, shows that just over a quarter (26%)  of them will dramatically increase allocations to illiquid assets, Aeon Investments – organizing the study – reported today. 59% of respondents said they will increase allocations slightly and 12% of them will keep allocations the same, while just 3% plan to decrease their level of investment in illiquid investments.

Respondents say the primary motivation for investing in illiquid markets is the need to protect from macro uncertainty. More than half (52%) of investors say this is the primary motivation for choosing private debt investments, which have strategies that offer a floating rate coupon, offering the potential for a natural hedge against inflation.

Private debt to diversify benefits

More than one-quarter (29%) of respondents said the most important feature of private debt assets is that they offer diversification benefits. One in ten respondents identified the expanding range of assets offered within private debt strategies as the key motivation for investing. The same number said the increased focus on ESG from the private debt markets is the most important reason behind more professional investors increasing their allocation to private debt.

Within illiquid assets, most respondents (80%) favour increasing allocations to residential real estate with 43% expecting to make dramatic increases. Commercial real estate was also seen as a growing area of interest for 81% of respondents, with 28% saying they would increase allocations dramatically.