Schroders Institutional Investor Study
Investors embrace private assets as geopolitical concerns and global economic slowdown fears soar
Geopolitical concerns and fears of a global economic slowdown have soared as investors increasingly embrace private assets, Schroders Institutional Investor Study 20191 has found.
The study - which surveyed 650 institutional investors encompassing approximately $25.4 trillion in assets – has identified a growing apprehension among investors amid a backdrop of increasing macroeconomic uncertainty.
More than half of investors (52%) said that politics and world events such as Brexit and trade wars would impact portfolio performance over the next 12 months. This is a marked increase on 32% of investors in 2017 and 44% in 2018.
Over a third of investors (37%) also cited a global economic slowdown as the biggest concern, significantly up on 27% a year ago. These findings are perhaps reflective of the continued trade dispute between China and the US, as well as the growing uncertainty ahead of the Brexit deadline.
Q. What influences worry you the most?
Higher interest rates were cited as the biggest influence on portfolio performance, although this was to a lesser extent than a year ago. In contrast, factors previously thought to be very influential – such as monetary policy tapering, regulation and the risk of cyber-attacks – have all steadily decreased in importance over the past 12 months.
In terms of asset classes, appetite for emerging markets (EMs) has fallen among institutional investors, with allocations dropping from 15% in 2017 to 10% this year. Expected allocations towards EMs over the next 12 months have also slipped to 9%.
Just a third of investors (29%) are holding their investments for 3-5 years, with only 10% remaining invested for a full cycle. This comes as more than half (53%) of investors stated there is a greater need for customised or bespoke products because off-the-shelf funds are failing to meet their organisation’s financial objectives.
Focus on private assets
Driving investors’ returns expectations is their continuing focus on private assets. More than half (52%) expect to raise their allocations to private assets over the next three years. Investors in North America (58%) and Asia (50%) were the most intent on doing so.
Investors globally cited the need to generate higher returns and portfolio diversification as the two biggest factors encouraging them to invest in private assets.
Across the private asset spectrum, private equity was viewed as the source of greatest potential returns, with 69% of investors anticipating returns of over 5%. Further supporting this view, out of the main private assets classes, 37% of investors globally are intending to increase their allocations to private equity, markedly ahead of private debt, infrastructure equity and real estate.
Investors, however, cited the cost and complexity of fees as the greatest challenge to investing in private assets, and also flagged high valuations as the primary concern when investing in the asset class.
Q. How concerned are you, or would you be, about the following when investing in private assets?
Overall return expectations
Despite these macroeconomic pressures, investors’ return expectations have, however, remained steady over the past 12 months. The majority of investors globally (57%) are factoring in annual returns of 5%-9% annualised over the next five years. This compares to 60% of investors a year ago.
Geographically, the gap between a bullish North America and more cautious investors in Europe has significantly widened.
Over three-quarters (77%) of North American investors are estimating returns of 5%-9%, a marked difference to 42% of investors in Europe.
Andreas Markwalder, CEO Schroder Investment Management (Switzerland) AG, commented:
"In view of the geopolitical uncertainties, concerns among institutional investors are understandable. Nevertheless, it is encouraging to see that despite these challenges investors' return expectations - with the exception of those in Europe - remain relatively robust and their holdings periods are also stable. Particularly in challenging times, investments should not be reshifted, as this could have a negative impact on portfolio returns. As standard funds are failing to meet their financial targets in this challenging environment, the need for tailormade products is increasing".
Georg Wunderlin, Global Head of Private Assets, Schroders, commented:
“Institutional investors are increasingly aware that they can afford a higher share of illiquid assets in their portfolios, given their long-duration liabilities. They are therefore looking to capture the illiquidity premium while adding diversification to their portfolios.
“In the current market environment investors are particularly interested in strategies based on ‘deep operational skills’ where performance can effectively be ‘manufactured’ by the responsible investment teams. Examples are small and midcap buyouts in private equity or differentiated value-add strategies in real estate. In these areas investment performance is considerably less influenced by market cycles.”
1 This global study was commissioned by Schroders for the third consecutive year to analyse institutional investors and their attitudes towards investment objectives, risks, private assets and sustainable investments. The respondent pool represents a spectrum of institutions, including pension funds, insurance companies, sovereign wealth funds, endowments and foundations managing approximately $25.4 trillion in assets. The research was carried out via an extensive global survey during May 2019. The 650 institutional respondents were split as follows: 175 in North America, 250 in Europe, 175 in Asia and 50 in Latin America. Respondents were sourced from 20 different locations across the world.
For more detailed information on the study, please click here.
For further information, please contact:
Schroders
Alice West, Senior Corporate Communications Manager
Tel: +41 (0)44 250 12 26 / alice.west@schroders.com
Note to Editors
Schroders plc
Schroders is a global investment manager with more than 215 years’ experience of helping our clients meet their goals, fulfil their ambitions, and prepare for the future. Schroders currently manages CHF 551.5 billion and employs over 5,000 people in across six continents.*
Schroders is listed on the London Stock Exchange and is a member of the FTSE 100. It also remains in part a family business, with almost half of voting shares held by the Schroder family. Independence and long-term thinking are central to our business philosophy – values reflected in our steady ownership structure.
At home in Switzerland for over half a century – here we have three businesses; each with its own emphasis, all with the same clear focus on meeting clients’ needs and adapting to a changing world:
- Schroder Investment Management (Switzerland) AG is our investment management business. It offers institutional and private investors a wide range of Swiss-domestic and foreign-domiciled funds, along with bespoke investment mandates.
- Schroder & Co Bank AG provides bespoke Wealth Management services to private individuals, family offices, external asset managers and charities.
- Schroder Adveq is a leading private equity asset manager serving institutional investors, namely pension funds, insurance companies and others throughout the world.
Our combined Swiss team is made up of around 400 people. Together they are responsible for a total of CHF 79.2 billion.**
Find out more about Schroders at www.schroders.ch
*as at 30 June 2019
**as at 31 December 2018
Important Information
For professional investors and advisers only. This material is not suitable for retail clients.
This presentation is intended to be for information purposes only and for the sole and the exclusive use of the recipient. The views and opinions contained herein are those of Schroder Investment Management (Switzerland) AG, which may change without notice and which may not necessarily represent views expressed or reflected in other Schroders communications or strategies. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument and should therefore not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Information herein is believed to be reliable but Schroder Investment Management (Switzerland) AG does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. Third party data is owned or licensed by the data provider and may not be reproduced or extracted and used for any other purpose without the data provider's consent. Third party data is provided without any warranties of any kind. The data provider and issuer of the document shall have no liability in connection with the third party data.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal.
This document may not be reproduced, copied, distributed or otherwise transmitted either in whole or in part to any third party without the explicit written consent of Schroder Investment Management (Switzerland) AG.
Issued by Schroder Investment Management (Switzerland) AG, Central 2, CH-8001 Zurich which is authorised and regulated by the FINMA.
Important information
This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.