Home / Analysis / Funds get back to basics: chasing investment returns

(pictured: David Braga)

The search for investment returns and the current risks in markets have replaced the former major concerns about dealing with regulatory changes and cutting costs among those involved in investments and operations at both super funds and fund managers, according to the latest annual survey by BNP Paribas Securities Services.

In a sense, this is good news for the industry. The annual survey, in which Investor Strategy News and our affiliated media, Investment News NZ, participated shows generating returns remains a challenge for a majority of the industry and the need to enhance efficiency in the process is still present.

However, the previous focus on cutting costs has shifted to adeptness and partnerships to help achieve that. Areas being considered by Australian asset owners and managers for this include ‘fintech’ and middle and/or back office outsourcing. Risk management also remains high on the agenda, although shifting from higher levels of concern on regulatory risk a year ago to being more about investment risk today.

As for investing, respondents to the survey rated offshore equities as the most promising asset classes for investors this year, with a majority of asset owners expecting to invest more in global and emerging market shares. This was followed by investments in direct assets, such as infrastructure and private equity.

David Braga, the head of BNP Paribas Securities Services for Australia and New Zealand, said: “Despite change and challenges, the research found that the industry is in good health and poised for further growth – albeit with some difficulties ahead. How each organisation faces the future will obviously vary.”

He said: “In today’s low-yielding markets, institutional investors report they continue to seek ways to further manage the level of risk in their portfolios, while trying to maintain consistent real returns to meet their commitments.

“How to generate and maintain those returns, along with worries about further economic or market shocks, equally top the list of the industry’s greatest fears for 2016.”

With an increased focus on investment risk, rather than regulatory risk, the survey shows that there is a challenge ofr both asset owners and fund managers to improve the quality of reporting. Everyone wants to be able to better understand how much risk they are taking to generate their returns.

Braga said: “As asset owners and managers diversify further into additional assets, such as direct assets, they report increasingly encountering issues in understanding and aggregating risks, exposures and performance. This is often due to the fact that some asset classes are more opaque than others (such as infrastructure and private equity) while data can be inconsistent and hard to compare when coming from multiple sources.

“Asset owners and managers who have been pursuing investment returns with very limited risk attribution analysis will have to improve their processes.”

The asset classes which investors expect to deliver the highest returns this year, in order, are: global equities, infrastructure, emerging markets equities, private equity, Australian shares, hedge funds, Australian fixed income, global property, and finally cash.

– Greg Bright