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Investors concerned inflation, rising rates will hurt investment objectives – bfinance




Only 56% of investors are satisfied with their overall performance this year, according to the results of a biennial survey of global asset owners conducted by London-based independent investment consultant bfinance, down from 82% in the summer of 2022.

The survey, released on Monday, also found that some 63% are satisfied with the performance of their active portfolio managers.

Additionally, an overwhelming majority (87%) of asset owners surveyed said they fear inflation and rising interest rates will hurt their ability to meet their investment goals amid fears of recession. . However, only 43% of investors have made recent changes—or plan to make changes soon—that would increase the inflation sensitivity of their portfolios. Moreover, only 17% expect to make such portfolio adjustments in the next 18 months.

The survey, conducted in September, included 396 senior investors in 40 countries whose institutions are responsible for more than $13 trillion in assets, noted a statement issued in conjunction with the survey.

When it comes to climate concerns, 32% of respondents said they were reducing carbon emissions from their portfolio, while 34% were considering doing so. About a third of respondents said it would be “unlikely” to hire managers who are not committed to net zero.

Amid this year’s turmoil in global economies, more investors are migrating to private markets in their asset allocations – some 52% of investors expect these exposures to increase over the next 18 months, while 28% plan to reduce their equity exposure.

“There is no longer any doubt that we are in a period of secular macroeconomic transition,” Kathryn Saklatvala, head of investment content at bfinance, said in the statement. “Institutional investors are obviously concerned about inflation and rising rates, but the looming threat of recession and the sharp decline in public markets this year make forward-looking choices very difficult. The investment strategies that can offer the greatest resilience in a climate of inflation and rising rates may also be more vulnerable in a climate of recession and higher defaults, and vice versa.”

The survey also revealed that 20% of investors are likely to turn to active management over the next 18 months, while 14% will go the other way over this period, to passive investing.

Over the past 18 months, 16% of investors said they have switched to active management, while 13% have switched to passive management.

The move towards active management has been “most evident” among insurers and endowments/foundations, the survey says.

Moreover, the number of investors exposed to cryptocurrencies is expected to increase from 8% currently to 21% in five years. But this move into crypto varied widely by region – for example, 57% of US-based investors expect to have some exposure to this asset class within five years, compared to just 11% of investors United Kingdom.

About a third (33%) of respondents expect their portfolios to become less liquid over the next 18 months, while only 12% expect their holdings to become more liquid over this period.

The report also found that over the past three years, 30% of respondents have outsourced, meaning transferred a greater proportion of assets to external asset managers. However, despite this increased reliance on external management, asset owners’ internal management teams are growing. Indeed, some 48% of investors have increased the number of investment staff on their internal team over the past three years.