Fund managers saw a crisis coming this year; may turn to alternative investments
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No one could have predicted the COVID-19 crisis, let alone the impact it has on global markets. But fund managers predicted risk-avoidance would be more critical in 2020 and had begun to respond accordingly.
Today French investment bank Natixis released it’s annual fund managers survey which interviewed over 400 fund buyers.
The survey was conducted before the crisis broke out but showed money managers expected 2020 to be a different year to 2019. Seventy-nine per cent of respondents expected greater volatility this year and were taking a risk-off approach.
And having started preparing early, these fund managers believe they are well placed to ride out the volatility.
“Against the backdrop of ongoing market volatility, and the Coronavirus pandemic, fund buyers are facing many challenges not seen within our lifetime,” Natixis Australia CEO Damon Hambly said.
“Survey findings suggest they are well prepared for this shifting market environment and are focused on guiding their clients through.”
While fund managers earn more for higher performance, 73 per cent of fund managers were willing to underperform their peers in exchange for greater downside protection.
Forty-nine per cent of respondents said private assets would be more prominent going forward.
Among the more popular options were real estate and real estate investment trusts (REITs), which were favoured by 63 per cent of fund managers; private equity (54 per cent) and infrastructure (53 per cent).
The shift to the private markets was triggered by their expectation for US equities and bond yields to underperform.
However, private markets have their own problems and 89 per cent of fund managers expressed concern that the large pool of money was chasing too few private equity deals.
This does not mean fund managers are turning passive, with 74 per cent of the view that the market is favourable for active management. They believe greater volatility and dispersion presents significant opportunity to find value.
Another risk-diminishing consideration was socially responsible investing, also known as environmental, social, and governance or ESG. Sixty-two per cent of fund managers were seeking demand to align their strategies with their clients’ values.
Of these a significant subset said this was to either minimise headline risk or generate high risk adjusted returns.
Even those who are not fully onboard yet, think ESG investing will eventually be the norm.
Sixty-seven per cent of respondents thought socially responsible investing would be standard practice in five years, up from 51 per cent two years ago.
Furthermore, 56 per cent now believe ESG mitigates risk.