This year’s top 10 stories included a peek into AustralianSuper’s international equities build out in London, AMP’s move to slash employee benefits, and plenty of hard-hitting analysis of the issues that matter in institutional investment. But the real story is how readers helped shape all of that coverage.
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More than half (57 per cent) of the Australian respondents to Nuveen’s annual Equilibrium survey, which covers 800 institutional investors around the world, say that the current investment environment “is like nothing they’ve ever seen”. Rising geopolitical tensions are reshaping views on markets and risk, and 74 per cent of respondents say that geopolitics are “much more influential” for their portfolios than at any point in the last three decades.
“The uncertainty of geopolitical events is something that’s very hard to factor into whatever quantitative model you may be running; the fear of the unknown, particularly given the gravity of what some of those geopolitical events, may be concerning a lot of people,” Andrew Kleinig, Nuveen managing director and head of Australia, told ISN.
“We’ve been hearing that there are understandable concerns from a country or region perspective. I think it’s fair to say that some super funds and even large North American funds have changed their geographic allocation on the basis of these geopolitical concerns.”
“More and more of the best return seeking assets are in private hands; it’s not the public markets. And whether you agree with that or not, that’s what institutions are doing.”
U.S. private pension investment director (from survey)
The per cent of investors planning to increase alternative allocations also rose markedly across assets; infrastructure saw the biggest planned allocations, but assets like timberland and farmland also saw significant jumps in interest. Both certainty and reduction and reduction of volatility on a short-term basis are the key drivers of the trend, but:
“We ask a hundred people and get a hundred different answers,” Kleinig says. “One is the degree of protection from the volatility that people have experienced in public markets, though that has its positives and negatives – some would comment that there’s sometimes a lag on the private markets side.”
“Then there’s the increased desire for more stability from an income perspective. In our discussions with capital and strategic partners we’ve found that private credit has tended to provide a bit more certainty from an income perspective. And then there’s a feeling that there’s going to be a bit more of a provision of yield within private markets.”
While the survey wasn’t constructed with reference to Your Future Your Super (YFYS) – it was kept relatively generic to maintain global relevance – some of the impacts of YFYS and RG97 came through in the responses, and it’s clear that benchmarking is having some “relatively material implications” for how Australian institutions are allocating.
“Real estate is an interesting one – the underlying unlisted real estate benchmark is domestic only, and has a very heavy weighting to office retail and a smaller weighting to industrial and an almost non-existent to the other sectors… making an off-benchmark allocation to an offshore developed subsector in real estate obviously has implications down here from a benchmarking perspective,” Kleinig says. “Private credit is another one, specifically middle-market direct lending allocations. The benchmark that most institutions use is not necessarily a comparable representation to what they’re investing in.
“There are 15 companies (in our portfolio)that generate 85 per cent of our emissions. So if we keep holding those companies – and when you look at them, you probably will because they generate good returns – you fundamentally need to engage with them to achieve your goals.”
Australian private pension head of sustainable investing (from survey)
And the priority asset classes for climate risk mitigation were infrastructure (71 per cent), public equities (62 per cent), and private equity (51 per cent). Natural capital, including assets like farmland and timberland brought up the rear at 19 per cent.
“The use of equities to facilitate a climate or impact outcome above things like fixed income (was surprising) – there’s green bonds, blue bonds, orange bonds and the ability to have a definitive ability to influence climate outcomes via transitionary management with corporates or sovereigns,” Kleinig said. “Clearly a lot of Australian respondents have a very high allocation to equities, but their use as the second most influential tool for a climate or impact perspective jumped out.”
