Monetary policy around the world is diverging and, along with other forces, is encouraging major investment groups to move into alternative assets, a study by BlackRock says.

Global institutional investors managing around $8 trillion will push more money into alternative assets and less conventional fixed income strategies as they focus on what they see as diverging monetary policies and expected growth in developed economies, a survey by BlackRock says.

Studying trends amongst the major institutions on a regional scale, BlackRock found the anticipated changes within the Asia-Pacific region largely mirror those on a global basis. The survey was carried out in November and December last year amongst BlackRock’s top 169 institutional investors.

“Mixed economic growth forecasts and shifting monetary policies are significant challenges for our clients. These conditions are testing investors’ ability to generate sufficient returns to meet their long-term liabilities. In today’s environment, we advocate proactive risk management. We believe institutional investors should also consider alternative and non-traditional asset allocations, particularly longer dated ones that allow institutions to ride out the expected near-term volatility,” Mark McCombe, senior managing director and global head of BlackRock’s institutional client business, said in a statement.

Investors anticipate low rates will continue, with a resounding 74 per cent stating it was unlikely that the US 10-year Treasury note would rise above a 3.5 per cent yield over the next year. Meanwhile, 88 per cent of respondents believe it is unlikely the US Federal Reserve will tighten too much too soon, the firm said.

More than half of those surveyed (56 per cent) expect Europe to enter a deflationary regime, yet they retain near universal confidence in central bank policy, with two thirds (63 per cent) stating that they believe that the European Central Bank will maintain its credibility with investors. Slowing growth in China is also anticipated, with more than two-thirds of respondents (69 per cent) expecting the country’s growth to dip below 7 per cent.

When surveyed on asset allocation, BlackRock found an increased investor appetite amongst investors for allocations to real assets, real estate, private equity and unconstrained fixed income. The firm examined allocation strategies on a regional scale, and found that anticipated adjustments amongst Asia-Pacific institutions largely dovetail with global trends.

Some 64 per cent of Asian institutions anticipate increasing allocations to real assets (compared to 60 per cent globally), 54 per cent plan to add to real estate and 43 per cent to private equity (compared to 50 per cent and 47 per cent respectively on an international basis). Within fixed income, Asian institutions expect to decrease their allocations to high yield and long duration, with unconstrained (41 per cent), emerging markets (38 per cent) and short duration (32 per cent) gaining favour.

“The trend towards alternatives isn’t new, but what is surprising is the level of conviction institutions [have] towards physical assets like real estate and infrastructure. We believe many institutions are structurally under-invested in real assets, and it is great to see they are more bullish on these strategies than they were 12 months ago. The moves in fixed income are also significant and highlight the importance of manager selection and mandate flexibility in a time of yield scarcity,” added McCombe.

BlackRock revealed that fixed income portfolios are changing across the board, as investors move out of core and long duration strategies on a global scale, instead increasing allocations to unconstrained (35 per cent), emerging market debt (38 per cent), US bank loans (33 per cent) and securitised assets (23 per cent). Conversely, cash no longer reigns, as more than a quarter of institutions (26 per cent) expect to reduce cash allocations, and 39 per cent will decrease investment in fixed income.

The US-listed asset management giant questioned institutions including public and corporate pensions, official institutions, insurers, investment managers, endowments and foundations for the poll. Some 40 per cent of the respondents were located in North America, 29 per cent in Europe, the Middle East and Africa, 20 per cent in Asia-Pacific, and 11 per cent in South America.