A new report by global investment consulting firm bfinance has revealed what investment managers are searching for in the current market.
bfinance has issued their latest quarterly Manager Intelligence and Market Trends report providing insights into the first quarter of 2022.
bfinance services include a manager search and selection.
REPORT HIGHLIGHTS
– New searches for real estate jumped sharply year on year from 15% of all private markets searches to 26%
– Investor appetite for emerging markets equity has proven particularly strong, with the number of manager searches rising markedly by 33% year over year for the trailing 12 months to 31 March
– bfinance observe a significant increase in clients specifying carbon and/or climate-related search parameters when setting out their requirements for new manager searches
– Investors lost their appetite for investment grade bond strategies and pivoted towards assets that offered floating rate exposure or enhanced yield (with an emphasis on short duration and higher quality)
– Private debt drew the largest percentage of new searches initiated over the past 12 months to 31 March 2022, accounting for 34% of all new search activity
A statement by bfinance said as geopolitical tensions rose in the wake of Russia’s invasion of Ukraine, a series of macroeconomic shifts furthered existing inflationary pressures, creating a major challenge for policymakers in developed markets.
Investors who expected the post-pandemic economic recovery to continue unabated had to alter their expectations as growth slowed and markets turned volatile. Evidence of that adjustment was reflected in the bfinance Risk Aversion Index, which moved sharply into risk-off territory, rising from 0.50 (modestly risk averse) to 0.79 (markedly risk averse) in Q1.
As increased volatility rocked global equity and fixed income markets, investors pursued diversifying and defensive strategies, reducing their exposure to Eastern Europe (and divesting entirely from Russia wherever possible) and focusing new equity search initiatives on global emerging markets.
In fixed income, investors pivoted towards assets with floating rates, such as leveraged loans, for better inflation protection. They also focused on higher-yielding assets, such as emerging market debt and high yield bonds.
Private markets continued to attract interest as investors sought alternatives to more traditional equity and fixed income allocations such as private debt. This included niche alternatives such as trade finance which accounted for 34% of new searches in private markets in the 12 months to 31 March 2022.
Real estate also experienced a resurgence of investor interest during the quarter. The sector accounted for 26% of all private markets manager searches in the 12 months to 31 March, an 11 percentage point increase from the previous year.
Even as the prevailing market environment proved challenging, hedge funds and other liquid alternative strategies continued to perform well. In Q1, we observed a tactical recalibration as many companies shifted their attention away from direct investment initiatives towards multi-asset and overlay projects while still maintaining the same objectives: diversifying portfolio returns and controlling traditional risk exposures.
