Bfinance queried 396 senior investors whose institutions are responsible for more than $13 trillion in assets, across 40 countries.
While global satisfaction this year varied geographically, 91 per cent of all investors were moderately to very concerned about the potential damage that inflation and rising rates may have on institutions’ ability to achieve investment objectives over the medium term.
In spite of this, more than one in two (52 per cent) Australian investors are currently underweight risk assets, compared to 28 per cent of their global peers. And although local investors have turned their gaze to private markets strategies, just 43 per cent of Aussie investors said their exposure to these strategies would increase compared to 52 per cent of those surveyed worldwide.
Bfinance also found that some 28 per cent expected to cut exposure to equities, citing a “very modest” positive swing in favour of fixed income, driven both by higher interest rates and by investor de-risking.
“Private markets have initially appeared to provide more resilience, and investors are continuing the long-term trend to increase exposure to illiquid strategies, but complacency should be avoided at all costs. Investors must now navigate these ‘traps’ with care,” Kathryn Saklatvala, head of investment content at bfinance, said.
Moreover, bfinance found that 40 per cent of Australian investors are shifting towards passive assets in the next 18 months, compared to 14 per cent of all investors surveyed globally.
The research did, however, reveal that 44 per cent of Australian investors have recently made and/or are about to make changes that increase the inflation-sensitivity of the portfolio compared to just 43 per cent worldwide.
Additionally, bfinance pinpointed a shift towards active management, with 20 per cent of investors predicting a move towards active management in the next 18 months. The movement favouring active management, the research revealed, is most evident among insurers and endowments/foundations.
Wealth managers, conversely, are trending towards passive as they seek to compete with peers on cost while simultaneously adding alternative strategies.
1 in 2 Aussies satisfied with performance
Overall, the survey found that 50 per cent of Australian investors were satisfied with their overall performance in 2022 compared to 56 per cent globally.
“For Australian investors, there is a strong level of satisfaction towards private market strategies and their performance. Particularly for institutional investors, the low volatility of private assets can be extremely important both from an asset allocation viewpoint but also from a Your Future Your Super benchmark point of view,” said Sebastian Mays, business development director at bfinance.
Interestingly, the level of satisfaction globally has fallen from 82 per cent in 2020, but respondents did not appear to be laying the blame on their strategic asset allocation with 82 per cent said to be satisfied with their performance there.
Looking at other investment vehicles, bfinance found that only 5 per cent of Australian investors currently have exposure to cryptocurrencies, but this is expected to rise to 29 per cent in five years’ time. The responses differed substantially by region, namely when compared to Australia, 57 per cent of US investors expected to have some exposure in five years’ time.
Australia leads in targeting net zero
Bfinance also looked into the ESG imperative of investors and found that Australians lead the pack when it comes to ‘targeting net zero’.
As many as 48 per cent of Australian investors said they are targeting net zero compared to just 24 per cent globally.
“ESG-related practices, including newer themes — including carbon reductions and impact investing — are still on the rise. A quarter of investors are now engaged in ‘impact investing’, with a further third planning on doing so. When it comes to carbon, 32 per cent of investors are reducing portfolio carbon emissions/intensity,” the report said.
Regarding the extent to which investors are prioritising ESG capabilities when selecting external managers, 25 per cent of Australians reported that they would be unlikely to hire a manager who has not made a net zero commitment — sitting in fourth against the countries surveyed.
“Our preference is for the higher ESG standards but where there is substantial merit (performance, market access, idiosyncratic attributes) then we will assess on individual merits.” an Australian investor commented.
However, more than 80 per cent of Australian investors say that ESG considerations have not contributed — even partially — to any internal terminations.
