Why are investors leaning towards private debt?
Schroders released new insights into the evolving investment strategies of Canadian institutional investors. The 2024 Global Investor Insights Survey revealed an increased interest in private markets as institutional investors examine central bank policies, interest rates, and the potential for an economic downturn while strategizing for their portfolios over the next 12 months.
Monetary policy as a leading concern
The report highlighted that 72% of Canadian respondents expect central bank policy to significantly affect their portfolios. High interest rates (65%) and economic slowdowns (64%) were also major concerns. With central banks adjusting monetary policies, 64% of Canadian investors identified these decisions as the biggest threat to fixed-income investments over the next one to two years.
Adam Farstrup, head of multi-asset for Schroders Americas, emphasized the importance of remaining focused on long-term investment strategies despite immediate economic challenges. “Building a broadly diversified portfolio meant to weather various market cycles and events is key to pursuing strong returns amid all economic concerns, known and unknown,” he said.
Private market allocations grow
Canadian institutional investors are showing increased interest in private markets, with many planning proactive allocations in key sectors. Over the next two years, 55% plan to invest in energy transition and decarbonization projects, while 51% are targeting the technological revolution. Demographic changes are another significant area, with 36% aiming to capitalize on evolving population trends.
In terms of asset allocation within private markets, the survey found that 51% of respondents plan to increase investments in private debt over the next 12 months, 46% will boost infrastructure debt, and 42% will allocate more funds to private equity. The energy transition was highlighted as a strong driver for these investments, with 51% seeing diversification benefits and 44% recognizing the potential for strong returns.
Energy transition drives investment
More than half of Canadian investors view the energy transition as a key theme in their portfolios. Diversification opportunities were the main reason cited for investing in this area, followed closely by expectations for solid investment returns and alpha generation. The energy transition encompasses various emerging technologies and infrastructure investments, with Canadian investors keen to capitalize on growth in these sectors.
“As institutions search for diversification amid a set of increasingly volatile macroeconomic conditions, it is no surprise that investor momentum for private market strategies is continuing,” said Nick Thompson, head of private asset sales for North America. “We are seeing ample opportunity across the private markets spectrum to capitalize on the major themes impacting our world today, such as technology and the energy transition, as well as deglobalization, changing demographics and a changing interest rate and inflation landscape.”
The report’s findings are based on responses gathered from pension funds, insurance companies, family offices, endowments, foundations, and other official institutions.
Schroders is a global asset management company with a diverse client base, including pension funds, insurance companies, and high-net-worth individuals. Established in 1804, the company manages over $978.1 billion in assets.
