Equities are back in favour among global institutional investors, according to investment consultancy bfinance, which has reported that the number of new equity manager searches in the first quarter of the year was equal to the previous three quarters combined.
In its latest quarterly analysis of institutional investor activity, bfinance said that demand for equities had warmed back up as markets headed upwards in Q1 2023, with the S&P 500 moving 17 per cent higher from the lows reached in October 2022.
“Last year proved to be one of the worst periods for both equity and fixed income markets in terms of performance, as investors were plagued with interest rate hikes, raging inflation, and persistent geopolitical concerns,” the firm said.
“However, the start of 2023 offered some much-needed respite and resulted in a renewed interest for the more traditional asset types, despite some turbulence towards the end of the quarter–largely caused by several high-profile bank failures.”
Private market asset classes continued to dominate new manager search activity, bfinance said, accounting for 58 per cent of new mandates from clients in the 12 months to 31 March, ahead of equities (17 per cent), fixed income (16 per cent), and diversifying strategies (10 per cent).
“Notwithstanding the ‘denominator effect’, sophisticated institutional investors have largely succeeded in retaining a long-term perspective and continued to allocate to current promising vintages,” the firm noted.
Meanwhile, half of new equity manager searches in the year to March were reported to have been initiated in Q1 2023, which the firm said represented “a significant shift in sentiment”.
“This rebound has partly been supported by easing inflationary concerns, with some activity placed on hold temporarily in the second half of 2022, but also reflects investors’ decisions to re-evaluate and adjust equity portfolio exposures (style, region, size, active versus passive) following the macroeconomic and market shifts of last year,” bfinance said.
A shift in demand for developed versus emerging market manager searches was observed by bfinance, with 76 per cent of all equity manager searches in the 12 months to March targeted towards developed markets, up from 65 per cent in the previous year.
“Within both developed and emerging markets we saw a shift towards global strategies versus regional strategies, with a particularly notable drop in China-focused mandates,” the firm said.
Additionally, searches for investment grade managers in the fixed income space were said to have surged on an annual basis but were offset by a decline in high yield deployment activity.
Investment grade fixed income manager searches accounted for 31 per cent of new fixed income manager searches, up from 7 per cent a year earlier, while 25 per cent of fixed income mandates targeted high yield debt, down from 40 per cent.
