Pension funds and other institutional investors have focused on protecting portfolios and seeking out new sources of potential return in private markets amid ongoing volatility.
- Private markets represented 68% of all new search activity for investors in the 12 months ended 30 June 2022, an increase of 13% year-on-year
- Multi-asset manager equity exposure has dropped to less than 32% – three percentage points below the long-term average
- Defensive positioning has become a top priority as bfinance risk index moves deeper into bearish territory
Pension funds and other institutional investors have focused on protecting portfolios and seeking out new sources of potential return in private markets amid ongoing volatility.
That’s according to the latest quarterly Manager Intelligence and Market Trends report from investment consultant bfinance. The report provides insight into how investors are adjusting their portfolios due to difficult market conditions driven by rising inflation and increasing interest rates.
Such conditions have driven considerable interest in private markets, which represented 68% of all new search activity for the 12 months to 30 June 2022, up 13% year-on-year.
Investors also demonstrated an appetite for real estate, which attracted 31% of all new searches, and private debt, which also drew attention as investors sought out new sources of portfolio diversification, income and inflation protection.
With investors prioritising inflation-resilient assets, the bfinance Risk Aversion Index – a proprietary measure used to calculate risk-seeking (nearer zero) or risk-averse (nearer 1) sentiment – showed the market consensus moving deeper into bearish, risk-off territory, rising to 0.82 from 0.79 during Q2.
Equity searches fell in Q2 as investors grappled with ongoing market volatility, encouraging them to consider defensive style strategies. Among the multi-asset managers tracked for the index, equity exposure dropped to less than 32% (three percentage points below the long-term average), and exposure to fixed income and other diversifiers rose to 68%. In equities, investors sought out growth, value and benchmark-aware opportunities, according to the report.
Despite the turbulence in public markets, hedge funds and other liquid alternative strategies have continued to provide investors with a significant source of portfolio diversification and returns.
Key implication | Managers: In a bearish equity market, investors have developed a sharper focus on defensive opportunities including hedge funds, private markets and real estate
