Nearly three-quarters of institutional investors will increase their allocations to private debt and structured credit in the next 12 months as they respond to challenging economic conditions, according to Aeon Investments.

Research by Pureprofile, on behalf of Aeon Investments, of over 100 global senior investment managers at pension funds, insurance asset managers, family officers and wealth managers with a total of USD 545bn AUM, found that 24 per cent will increase allocations to private debt dramatically in the next year, while half say they will slightly increase allocations. Sixteen per cent will keep allocations the same, while 9 per cent plan to decrease their holdings.

Meanwhile, 22 per cent of respondents say they will dramatically increase investment in structured credit, while 49 per cent will make slight increases over the next 12 months. One-quarter will keep their allocations the same while 3 per cent plan to decrease investments.

The story is similar over a three-year horizon. Seventy-one per cent will increase allocations to private debt, while 68 per cent will up their investments in structured credit.

Almost all (94 per cent) investors agree that credit offers a ‘compelling investment case in an absolute sense’ during the current economic downturn by offering attractive returns when equities are in decline. Two-fifths of respondents strongly agree, while half slightly agree with this view.

When asked to select their three main reasons for increasing allocations to private debt, 59 per cent selected an improved regulatory environment and this was followed by more choice for investors (58 per cent); greater innovation in the private debt investment market (54 per cent); and attractive yields and increasingly appealing risk-adjusted returns (53 per cent).

More than three-quarters (77 per cent) of investors say private debt will become more appealing over the next two years because the asset class’s defensive characteristics contribute to risk management in times of market distress.

The majority (85 per cent) of respondents expect the regulatory environment to continue to move favourably for private debt markets, with one-quarter expecting significant improvements while 60 per cent expect slight progress.

Nearly all (93 per cent) investors agree that the bespoke nature of fixed income/credit means it is easier for investors to make a positive social and environmental impact.

Commenting, Aeon Investments head of capital markets strategies, Evgeny van der Geest, said: “The survey shows that investors are aware of the multiple benefits from investing in structured credit and private debt markets, particularly given the current challenging economic conditions. It is clear fixed income plays an important role in helping investors achieve attractive risk-adjusted returns while also meeting sustainable investment goals.”

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