A new report from BlackRock suggests that foundations and endowments will need to increasingly rely on private markets and alternative investments to meet their long-term return targets amid a period of uncertainty spurred by inflation concerns, interest rate volatility, and geopolitical tension.
The report, “Meeting the challenge: Endowment portfolios in the new regime,” emphasizes the growing importance of private equity, particularly co-investments and secondaries, private credit, infrastructure, and hedge funds in the portfolio construction for foundations and endowments.
BlackRock points out that secondaries, especially, are increasingly attractive as many private equity portfolios are cash-flow negative, creating opportunities to acquire assets at discounted prices.
Private credit is another area the report flags as offering significant potential, projecting that assets under management in the private credit space could nearly double to $2.8T by 2028, as lending from traditional banks is constrained due to regulatory changes. For institutions seeking more predictable cash flows, BlackRock also notes that direct lending and opportunistic credit strategies are positioned to provide higher yields and faster returns than public fixed income.
Infrastructure investments also emerge as a key focus in the report, with global demand for projects related to energy transition and digital infrastructure on the rise. BlackRock estimates that $3.5T in energy investments will be needed annually by 2030, creating long-term growth opportunities in sectors like renewable energy, logistics, and telecommunications.
Finally, the report also points to hedge funds as a critical component in institutional portfolios, offering uncorrelated returns that can provide diversification as stock-bond correlations weaken in an inflationary environment.
Access the report here: https://www.blackrock.com/institutions/en-us/endowment-3-0
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