Almost half of all pension funds, insurers and institutional investors holding Russian assets have taken steps to remove these from portfolios, following its invasion of Ukraine.
A snap poll of over 418 institutional investors by investment consultancy bfinance found that half of respondents had had direct exposure to Russia heading into the first quarter of this year. A total of 45 per cent of these investors had either fully exited these investments or were in the process of doing so.
This ‘What Are Investors Thinking Now?’ poll found that almost four out of 10 institutional investors (39 per cent) predict a re-evaluation of their ESG approach in light of these recent geo-political developments, either internally or via the changing practices of their external asset managers.
However, this isn’t the only issue leading to a re-evaluation of portfolios, with four out of five investors concerned that inflation and rising interest rates will be problematic for achieving medium-term investment objectives.
A total of 41 per cent of investors polled expect to increase the ‘inflation-sensitivity’ of their portfolios this year. This is reflected in a shift in asset allocation, with a renewed focus on real assets and illiquid strategies, with 46 per cent of respondents saying they expected to increase exposure to infrastructure in the next 12 months.
Finance says that following a dramatic and sobering first quarter, many institutional investors are grappling with pressing macroeconomic and geopolitical developments, and must also now scrutinise how their portfolios have weathered significant market declines.
Kathryn Saklatvala, head of investment content at bfinance, says: “To some extent, the asset allocation changes we are seeing here represent a continuation of some longer-term shifts, such as the shift in favour of illiquid strategies and real assets. Yet investors’ concerns about inflation and rising rates—which come through in these statistics—are giving greater impetus to these trends. It is particularly interesting to see the large minority of respondents for whom geopolitical developments are prompting a change in ESG approach.
“This has chiefly been focused on topics such as weapons manufacturers, energy companies and country exclusions. Even among those that indicated that the conflict would not affect their ESG approach, many said that it had illustrated the importance of having a robust approach here. Indeed, we saw cases where ESG-oriented investors had significantly reduced or eliminated Russia exposure ahead of 2022, which benefited performance in Q1.”
This snap poll surveyed 418 investors across 39 countries, including 162 pension funds and 82 insurers, and is a precursor to bfinance’s upcoming biennial Asset Owner Survey launched in 2022.