Institutional investors have become more cautious and discerning during the recent “problematic” macroeconomic environment, according to new insights from bfinance.
The firm’s quarterly insights report has highlighted a “wide variety of changes” in portfolio design, risk, and asset allocation strategy projects for institutional investor clients in Q2.
According to bfinance, among the most popular changes for investors during the quarter was a focus on resetting or upgrading the core of the portfolio in a shift “back to basics”.
“Across the board, we see investor clients in ‘Portfolio Solutions’ focusing on resilience, risk and re-evaluating the core of the portfolio – getting the basics right,” the firm said.
“In equities, we see investors concentrating on broad, global developed market mandates and quality styles, with high demand for assets that exhibit strong fundamentals, resilient earnings growth, sustainable competitive advantages, and pricing power.”
Meanwhile, within fixed income portfolios, bfinance has observed movement towards investment-grade corporate bonds and said clients were drawn by higher yields as well as the prospect of resilience.
“We see explicit intentionality on gaining exposure to companies that have demonstrated robust performance during economic downturns,” bfinance explained.
“The risk of rising interest rates and potential credit risks have also driven investors towards sovereign bonds as a means of diversification and risk mitigation.”
bfinance said that new manager search activity in the 12 months to June showed a shift to basics, with large new mandates in global developed market equities, an upward trend in investment grade fixed income manager searches and weaker appetite for hedge funds.
“That being said, more than half of new bfinance manager searches (53 per cent) still targeted private market strategies. This figure represents a decline against the prior year (58 per cent), but not a substantial one,” the firm noted.
“Industry-wide fundraising data, meanwhile, showed private market capital raising at its lowest level since the quarter that immediately followed the outbreak of the COVID-19 pandemic.”
While equities accounted for only one-fifth of new manager searches, bfinance said more than 50 per cent of new mandate volume was dedicated to the asset class. Fixed income accounted for 18 per cent of new searches, up from 11 per cent a year prior.
Within equities, bfinance reported manager search activity had shifted from emerging markets (EM) to developed markets (DM). EM equity searches accounted for 17 per cent share of all equity searches in the year to June, down from 33 per cent in the previous year.
“In fixed income, we continue to see a strong focus on investment grade credit versus higher-yielding segments, with a particularly notable drop-off in mandates targeting (floating rate) leveraged loans,” the firm added.
Additionally, bfinance indicated that ESG and related sub-topics remain a high priority for new manager search activity across all asset classes, with particularly strong appetite for dedicated “impact” and “climate” strategies along with broader ESG integration.
