BlackRock Inc. said it expects institutional investors to increase allocations to private equity and private credit funds this year even amid recession fears and rising interest rates.
Investors including pension funds, family offices and insurers currently allocate 24 percent of their portfolios, on average, to private markets, according to a newly released BlackRock survey of senior executives and allocators at more than 200 firms managing a total of $15 trillion.
Of those surveyed, 72 percent said they plan to increase allocations to private equity funds, while 52 percent aim to boost private-credit holdings. The survey ran from October 2022 through January 2023, before the collapse of three regional banks spurred the biggest industry crisis since 2008.
“Even amid heightened volatility and uncertainty, investing in areas such as renewable energy, mature private companies and direct lending — venture and middle market debt in particular — can provide a ballast to portfolios,” Edwin Conway, global head of BlackRock’s alternatives unit, said in the report.
The turmoil in the U.S. banking market — including the failures of regional banks Silicon Valley Bank and Signature Bank — may also provide an opportunity for private credit as small and mid-size banks pull back on lending, BlackRock said.
The increased interest in private markets comes even as central banks raise interest rates to fight inflation, which has driven up yields on government and corporate bonds. Higher interest rates “portend even more attractive returns for private debt holders” because deals often are structured with floating-rate terms, the report said.
