Aeon Investments: Demand for illiquid assets surges in response to ongoing volatility

January 13, 2023

Professional investors and family offices are increasingly turning to illiquid assets, including private debt, in response to the combination of ongoing volatility and rising interest rates and inflation, new research shows.

The study from Aeon Investments with family offices, controlling more than $98.4 billion assets under management, found 90% expect increased demand from investors for illiquid assets over the next two years. Around 12% predict demand will increase dramatically.

The research by the London based credit-focused investment company with family offices in the UK, US, Switzerland, Germany and the Nordic regions asked them to rank the reasons for increasing allocation to private debt.

It found that the key reason is their need to protect from macro uncertainty with private debt investments often offering strategies providing a floating rate coupon which has the potential to be a natural hedge against inflation.

Family offices also highlighted the fact that private debt offers new investment opportunities and a growing array of assets as well as its role in the diversification of portfolios and access to ESG benefits in sub-asset classes in private debt.

Aeon’s study found widespread agreement that the highest quality private debt instruments provide safety. Almost all (99%) questioned pointed to the combination of attractive yields and structural protections such as debt covenants and credit
enhancement as offering a high degree of safety.

That is being bolstered by the expectation of improved regulation in the sector – more than a quarter (26%) expect dramatic improvements in regulation for private debt over the next two years while 52% expect slight improvements in regulation.

Evgeny van der Geest, Managing Director, Aeon Investments said: “Ongoing volatility coupled with rising interest rates and inflation has highlighted the attraction of illiquid assets including private debt, and investors expect demand to grow. There is growing recognition that private debt can deliver attractive yields and high levels of protection which are very valuable in the current macro conditions.”