Australians instos using alternative credit to mitigate inflation

Australian asset owners are more likely to be proactively managing inflation risk in their portfolios than their global peers, according to research. 

Nuveen’s Equilibrium Global Institutional Investor Study surveyed 700 global investors and 100 consultants with at least $500 million in assets and found that Australian investors shared many of the same expectations for the future as investors around the world, bar a few key areas. 

Andrew Kleinig, managing director, head of Australia at Nuveen, said: “Investors in Australia and globally are concerned about fast-changing conditions in world markets and challenges in areas as broad-ranging as extreme weather, uncertainty around interest rates and inflation, the disruptive impact of Covid, and wider recognition of social inequality. 

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“The survey shows there are many similarities in the thinking of Australian institutional investors compared with investors in the US and Europe, but it also highlights areas in which Australian investors’ views and preferences differ from those of their global peers,” Kleinig said. 

The survey showed that 73% of Australian investors overall intended to implement inflation mitigation changes in their portfolios in the next 12 months, compared with 61% of institutions worldwide. 

With traditional fixed income assets no longer producing robust income, approximately three quarters of investors in Australia and globally said they planned to expand their reach for yield over the next two years with the vast majority (62%) looking to alternative credit. 

Private credit saw the biggest year-over-year increase in the percentage of asset owners who held the asset class. Now, 72% hold private credit, compared with 62% in 2020, and 31% said they planned to increase assets over the next two years. 

Among investors looking to increase their allocations to private credit, the most popular private credit investments were senior middle market debt (53%); infrastructure debt (45%) and real estate debt (38%). Australian investors were also interested in opportunistic private credit, with 60% expressing a preference for this asset type, compared with 35% of investors globally. 

Kleinig said: “Australian investors are casting their nets wide in identifying opportunities for yield. 

“Certain private credit is attractive to investors in Australia and overseas given the relatively higher spreads over public markets along with inflation protection via floating rates and covenant protection, yet generally exhibiting lower volatility relative to public markets.” 

Real estate was the most commonly-held alternative asset class, with 80% of investors currently allocated and 24% planning to increase their allocations in the next two years, according to the survey 

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