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IPE special report May 2018

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Institutional investors to cut risk exposure with shift into value

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Institutional investors will look to reduce their exposure to risk assets throughout 2015 with shifts towards value investments and real estate strategies, research shows.

A survey of 642 global institutional investors by Natixis Global Asset Management, including 345 pension funds, estimated that approximately 38% would reduce allocations to riskier assets, while 41% would move towards value products.

However, net investment towards to asset classes showed income-generation strategies and real estate were most popular, despite the outlook for equities being the most positive.

Respondents’ outlook on equities was very optimistic, with global, US, emerging market and private equity all tipped to be the top performing asset class by more than one-tenth of respondents.

However, investors are expected to seek value strategies over growth, with net investment into these strategies at 22% and 13%, respectively.

Investors also grew in confidence over meeting their total-return objectives, as 22% said this would not be difficult, compared with 12% in 2013.

Some 42% of respondents also said inflation would not be a difficult challenge in 2015 compared with 35% a year previous.

Despite expected interest-rate increases in the US and UK economies over 2015, and the scaling back of quantitative easing in fixed income markets, only 18% said they expected significant difficulty.

Some 61% said they would reduce bond duration in portfolios to mitigate any increase in interest rates, while 46% said they would reduce overall fixed income exposure.

One-fifth of respondents said they would hold on to large cash positions.

Natixis said: “Given that today’s low-interest-rate environment comes at the culmination of a 30-year period of declining interest rates, it would appear institutions have had a long time to prepare for a reversal of course.”

Eighty-seven percent of investors said they would meet long-term obligations, yet more than half (52%) said they did not believe their rivals would be capable of doing the same.

While 43% expected equities to lead the way in 2015, some 28% said alternative asset classes would perform best.

Euan MacLaren, head of UK/Ireland institutional business at Natixis, said: “Institutional investors clearly forecast a strong 2015 for the stock market, but, to make the most of this expected growth, they should be looking at smarter ways to access the asset class.”

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