North American institutional investors are turning to private credit as they brace for more market volatility over the next 12 months, according to a new Schroders survey.

The annual Global Investor Insights Survey reported that 53 per cent of North American respondents cited private credit as their number one area of interest within private markets, compared to 40 per cent of global institutional respondents.

Half of North American institutional investors also favoured these strategies as part of their portfolio income generation over the next 12 months, proving to be the most popular survey option.

“In an environment defined by uncertainty, inefficiency, and volatile risk premiums, the ability to select well-collateralized debt, backed by strong borrowers and robust security packages, is a significant advantage of private debt and alternative credit markets,” said Michelle Russell-Dowe, co-head of private debt and credit alternatives, at Schroders Capital.

“The ability to access diversifying and flexible income through the wide universe of securitized and asset-backed finance, defensive income through real asset debt, and uncorrelated income through insurance-linked securities, provides a valuable extension of the fixed income toolkit for investors.”

The majority (54 per cent) of North American investors are expecting the next 12 months to be more unstable than the year from 2022 and 2023, while 47 per cent are predicting more turmoil than the global financial crisis.

As a result, 76 per cent of respondents were looking to harness active management to build portfolio resilience, while 56 per cent had ranked it as their top priority.

“Active management has demonstrated its ability to dynamically adapt to changing market conditions, manage risk with greater precision, and uncover returns in areas where passive strategies may fall short,” said Tom Darnowski, chief executive, Americas at Schroders.

The top three factors building confidence in active management were diversification, the ability to respond quickly to uncertainty, and the potential to capture excess return.