Large asset owners are confident in their portfolios’ resilience, despite market uncertainty with more targeting higher infrastructure and private debt and equity allocations.
This is the more upbeat picture form Mercer’s latest global investment barometer, looking at more than 50 largest asset owners — with more than $5 trillion of assets under management.
Mercer says that these organisations are continuing to evolve their governance arrangements and asset allocations leaving them confident portfolios can withstand a range of shocks over coming years
Owners intend to further diversify their portfolios, specifically with investments in infrastructure, private debt, private equity and sustainability strategies. These are typically at the at expense of real estate and developed world equities.
The asset owners surveyed continue to invest for the long term and feel confident their portfolios are well positioned to withstand shocks over the coming year, remaining resilient to a range of issues such as stagflation, geopolitics, and volatility in public markets.
Mercer head of investment Europe, Elmer Walsh says: “Despite an uncertain market outlook, this category of investor is confident in the resilience of their portfolios, which has positive implications in relation to demand for risk assets.”
While asset owners expressed an interest in increasing their allocations to private markets, how to navigate them is a chief concern. Owners who do not have exposure to such asset classes cited complexity and illiquidity around the asset class for their apprehension. Additionally, only 18 per cent of asset owners manage private market investments in-house, with the majority opting to outsource management of this resource intensive asset class.
“Large Asset Owners have a clear understanding of what they do well in-house and where they benefit from external expertise,” says Mercer’s executive director, investments & global chief investment strategist, Rich Nuzum. “Nearly half (41 per cent of large asset owners surveyed say they prefer to outsource investment management entirely.
“With asset owners planning to add to their positions in private equity, private debt and infrastructure in the next year, the trend towards outsourcing could accelerate.”
The survey data suggests the world’s biggest pools of capital are cautious that the outlook may be challenging for US equities, UK equities and real estate – and are planning to decrease their exposure in the coming year. Whilst some pension funds may be moving out of equities generally as part of a de-risking pathway, this trend also indicates concerns around valuations in these asset classes.
Despite some negative headlines around ESG investing, the report also highlighted that half (50 per cent) of asset owners surveyed are set to increase their allocation to sustainable investment strategies, with 8 per cent set to ‘significantly increase’ allocations.
Large asset owners are still in the relatively early stages of setting climate targets, but momentum is building. While 55 per cent of these asset owners have set climate transition targets, only 29 per cent have actually implemented them.
Organisations are also more likely to take a long-term approach to their climate objectives; 47 per cent of the asset owners surveyed have set a 2050 science-based net-zero target, versus 5 per cent that have set a 2030 target.
“Large asset owners are an influential category of investors,” says Walsh. “By understanding their management and governance decisions, our clients can be better informed to make decisions about their own portfolios.”