How big funds are showing their views with new mandates

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Big investors seem reasonably sanguine about both their performance during the current market volatility and the outlook for markets generally over the next few months, according to a report by global manager search firm and investment advisor bfinance. The report was based on a survey, in June, of 368 of the largest pension funds in 38 countries, accounting for US$11 trillion in assets.

As much as it sounds like a cliché, the respondents to the survey, are “cautiously optimistic”. However, 35 per cent are making changes to risk management and 24 per cent are changing their asset allocation, including 39 per cent from the Asia Pacific region. A total of 48 per cent expect allocations to private markets to increase in 2020, which continues a multi-year trend. A total of 42 per cent believe that ESG issues will become more important.

In the latest quarterly manager survey, written by bfinance head of content, Kathryn Saklatvala, and analyst Tara Bhogal, the firm points out that the ‘growth’ style for big investors is “virtually the only game in town” according to recent performance. The researchers were probably just being polite. It’s been the only game in town for about 10 years. Key points from the survey and report include:

  • Equity growth managers outperformed the MSCI World index by more than 10 per cent in the June quarter – extending their outperformance to more than 20 per cent for the year to date. Quality managers underperformed by nearly 3 per cent in the second quarter, while more significant underperformance was felt among strategies with a focus on low volatility such as income and value
  • Manager searches: the first half of 2020 proved to be a “remarkably active period” for new manager selection activity, according to the report. A total of 55 per cent of all manager searches launched by bfinance clients during the last 12 months were initiated in the first half of the year. “Illiquid asset classes continue to become increasingly dominant as a proportion of new investor mandates, with demand spanning real estate, infrastructure, private debt and private equity,” the report says
  • Fixed income trends: recent months brought a renewal of interest in allocating towards high-yield strategies and a decline in sovereign debt investment activity. Meanwhile, investor appetite for absolute return strategies dropped off markedly and remains weak
  • A total of 82 per cent of respondents were satisfied with how their portfolios had performed in 2020 so far, while active management received positive feedback across most asset classes
  • Risk aversion: asset managers are seeking to ride the market rally, but risk aversion remains high. From a risk perspective, global asset owners have been focusing on areas such as improved liquidity management and more clarity on risk exposures, the report says, and
  • Inflation concerns: One key issue that investors are trying to reassess is the adjustment in inflation expectations as a result of measures taken to address the COVID-19 pandemic.

Malcolm Hunt, bfinance head of portfolio solutions, said that only one-in-four respondents were changing their long-term strategic asset allocation this year – “a significant proportion, of course, but not as much as one might expect amid a time of potentially fundamental economic and societal transition”. He said: “In contrast to 2008, when there was a general hiatus in portfolio changes, changes in real-money allocations through 2020 indicate investors continuing with pre-COVID plans, albeit with some changes at the margins to account for current opportunities and challenges.”

– G.B.

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