Schroder Institutional Investor Study 2020: Investors back private assets despite Covid-19 uncertainty

Investors are now acutely concerned about the investment impact of a global economic slowdown, Schroders’ Institutional Investor Study 2020 has found. But amid falling confidence levels, many are still looking to private assets to manage risk and diversify portfolios.

The study – which spanned 650 institutional investors globally, managing $25.9 trillion in assets – revealed that the vast majority of investors (79%) believed a global economic slowdown would have the biggest impact on their portfolio performance over the next 12 months.

Reflecting the current Covid-19 related concerns, this was a significant increase on 49% a year ago.

Source: Schroder Institutional Investor Study, 2020

The number of investors confident of securing their anticipated returns has dropped significantly from 52% in 2019 to 33% in 2020.

At the same time, investors said they were ramping up their allocations to private assets from 12.8% a year ago to 14.1% over the next 12 months, with 46% stating that an increase in their allocation to private assets would help manage risk.

Private equity, infrastructure equity and private debt were cited by investors as the main three private asset classes to which they intend to increase allocations over the next three years. 

Indeed, 71% of investors said Covid-19 had prompted them to look for undervalued assets while 26% said they would continue to diversify into alternatives and private markets in a bid to reduce their exposure to listed assets.

Johanna Kyrklund, Schroders’ Group Chief Investment Officer, commented:

 “Years of quantitative easing have borrowed returns from the future and Covid-19 has brought new uncertainties. Now, more than ever, is the time to remain focused on our underlying principles as active investors, with an unrelenting focus on excellence and accountability.

“We believe that it is only with a truly active approach we can offer our investors the best possible opportunity to benefit from strong performance and navigate the ebbs and flows of today’s global investment markets.

“Staying the course, focusing on the long term and continuing to listen to our clients remain our primary focuses, irrespective of the often rapidly changing outlook.” 

Georg Wunderlin, Schroders’ Global Head of Private Assets, commented:

“Historical crises have shown that portfolios with significant exposure to private markets achieve the best long-term investment performance.

“The Institutional Investor Study shows that investors continue to be attracted to private markets to increase diversification and access specialised, alternative return streams. These characteristics become especially valuable at times when the global outlook remains so unclear.

“As we review the results of this study, economies are more open than they were in April, but the impact of Covid-19 on our daily lives remains very present. Now it is becoming clear which sectors are emerging as the winners and losers.

“For our investors, we continue to believe that private markets offer investors manifold opportunities and that’s why growing Schroders’ Private Assets business, based on a philosophy of transparency and client service, has been a key focus.”

Previous key investment concerns such as the potential tapering of monetary policy and the impact of higher interest rates have moved to the periphery as Covid-19 issues have taken centre stage.

Source: Schroder Institutional Investor Study, 2020

Unsurprisingly, almost all investors (91%) stated that Covid-19 would cause a major global recession. More reassuringly however, a little over half (53%) said they would not make portfolio changes until the outlook was clearer. Furthermore, the majority (81%) of investors believed that a Covid-19 stock decline presented a good buying opportunity.

Globally, the majority of investors (67%) are expecting returns of 5% to 9%, with investors in the US remaining particularly bullish compared to their European counterparts.

Tellingly, investors’ focus on generating income has also fallen sharply with only 31% stating it as a primary investment objective, compared with 66% a year ago.

Conversely, 64% of investors cited capital preservation as a core objective in the current climate compared with 57% in 2019. On this theme, 54% of investors said liability-driven and cashflow-driven investments were crucial to managing their investments.

For private assets, performance track record, investment philosophy and fees were the main three factors investors said they would take into consideration when selecting a specialist manager.

Source: Schroder Institutional Investor Study, 2020

About the Schroder Institutional Investor Study:

The global study was commissioned by Schroders for a fourth consecutive year to analyse institutional investors and their attitudes towards investment objectives, performance outlook and risks to their portfolio. The respondent pool represents a spectrum of institutions, including pension funds, insurance companies, sovereign wealth funds, endowments and foundations managing approximately $25.9 trillion in assets. The research was carried out via an extensive global survey during April 2020. The 650 institutional respondents were split as follows: 179 in North America, 248 in EMEA, 173 in Asia Pacific and 50 in Latin America. Respondents were sourced from 26 different countries.