Institutions eye credit, cash amid 'higher-for-longer' rate reality

Institutional investors are adapting their strategies as they embrace high interest rates as the new normal, survey show.
Institutions eye credit, cash amid 'higher-for-longer' rate reality

A higher-for-longer interest rate paradigm has caught on among institutional investors that are planning to allocate public and private debt as well as increasing cash holdings.

That are some of the findings of the newly published EQuilibrium Global Institutional Investor Survey by Nuveen.

Almost half of investors surveyed – 48% globally and 44% in Asia Pacific – are planning to increase allocations to investment-grade fixed income, followed by 40% Asia Pacific – 38% globally – who plan to increase allocations to private fixed income.

Malaysia is one of the Asian markets where this trend is more prominently seen among institutional investors.

Alex Chin
Generali Malaysia

“I would prefer the interest rates to stay high for longer. I think it will be positive to the insurance funds as long as rates don’t keep moving up," Alex Chin, head of investment, Generali Life Insurance Malaysia, told AsianInvestor November last year.

"From that perspective higher interest rates translate to higher bond coupon income which will enhance future reinvestment return, and that will benefit the policyholder in the long run,” he said.

Another Malaysian asset owner, the pension fund Kumpulan Wang Persaraan (Diperbadankan) - also known as KWAP - is looking to add private credit investments to its portfolio holdings, as it pushes further into private markets.

Hazman Hilmi Sallahuddin

"In the last eight months [we have] been educating ourselves on the subject, meeting major global private credit GPs,” Hazman Hilmi Sallahuddin, chief investment officer at KWAP, told AsianInvestor in October last year.

Over the past two years, investors have been steadily increasing their cash reserves. This year, 56% of investors in the Asia Pacific region, and 55% of investors worldwide, reported holding larger-than-normal amounts of cash to take advantage of relatively higher yields.

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Among the reasons were the possibility to be nimbler in volatile markets and to take advantage of opportunities in case they arise. The surveyed investors are also holding more cash as an efficient way to fund capital calls for their private market investments.


While some investors have chosen to stick to strategic asset allocation, others are adapting their approaches to risk management, asset selection, and decision-making to create more resilient portfolios.

Eight out of 10 investors — 78% in Asia Pacific and 80% globally — now accept that a higher-for-longer environment has supplanted the era of ultra-low interest rates.

Consequently, two-thirds — 63% in Asia Pacific and 65% globally — of investors have adjusted to this new investment climate by reshaping their portfolio risk and return management strategies.

Nuveen and CoreData surveyed 800 global institutional investors, with 24% of respondents from Asia Pacific, North America (33%), and Europe, Middle East and Africa (EMEA, 43%).

The respondents were decision-makers at corporate pensions, public and governmental pensions, insurance companies, endowments and foundations, superannuation funds, sovereign wealth funds and central banks.

Asset owner survey respondents represented organisations with assets of more than $10 billion (53%) and less than $10 billion (47%), with a minimum asset level of $500 million.

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