A global survey of 368 institutional investors by bfinance has included responses from 34 Australian groups, three-quarters of which were superannuation funds.
Worldwide, the vast majority of institutional investors were happy with their performance through the COVID volatility, with 82 per cent reporting satisfaction.
Looking at the Australian slice, all family offices, insurers and foundations/endowments said they were “quite satisfied” with their portfolio performance for the year to date.
The super funds however diverged from the others, with 62 per cent saying they were “quite” satisfied, with 19 per cent saying they were quite dissatisfied and 5 per cent picking “very dissatisfied”.
At the other end, 14 per cent of the super funds said they were very satisfied.
Around two-thirds of the super funds reported their portfolios had lost 5-10 per cent of their value in the first quarter, while 14 per cent said they lost 10-20 per cent.
A fifth (19 per cent) said they lost 0-5 per cent.
Frithjof van Zyp, Australian senior director for bfinance commented the dissatisfaction ratings were an “interesting” difference when comparing the local respondents to their global peers.
“For example, 41 per cent of super fund respondents in Australia have been dissatisfied with the performance of their direct property portfolios relative to stated benchmarks and targets, whereas this figure is noticeably lower for global respondents, with just 23 per cent being quite or very dissatisfied,” Mr van Zyp said.
Australian investors also appeared more cautious than their global peers, Mr van Zyp said, noting that as far as positioning portfolios going forward, 11 per cent of Australian respondents indicated being overweight in risk assets, while 46 per cent are taking a tactical view of risk assets and 43 per cent are underweight.
In contrast global respondents were 19 per cent overweight, 52 per cent tactical and 29 per cent underweight.
“It’s also interesting to note that 37 per cent of super funds indicated having either already changed their strategic [or] long-term asset allocation since the onset of the pandemic, or expecting to do so before the end of 2020,” Mr van Zyp said.
“The response from pension funds globally sat lower at just 25 per cent. The sudden introduction of the early release scheme will have likely further contributed to super funds having to rethink their strategic asset allocations.”
The majority, 82 per cent, of Australian respondents said ESG considerations were important to setting investment strategy and implementation, compared to 78 per cent of global respondents.
Globally, half of investors with explicit liabilities said their asset and liability management has worsened this year.
More than a third are making changes to risk management as a result of COVID-19, while 24 per cent said they were changing their strategic asset allocation this year.
Almost half (48 per cent) of hedge fund investors and 64 per cent of alternative risk premia investors were dissatisfied with the performance of their asset managers (whether external or in-house in those strategies).
External managers face being chopped
bfinance ruled there were slightly higher levels of satisfaction within asset classes from investors globally where only internal teams were used to manage the asset class, despite there being no evidence of higher performance of in-house management than with external.
Most investors in the survey were said to use external managers for the majority of strategies, although a fifth (19 per cent) of investors reported they would be axing managers based on recent results, while 35 per cent said they were likely to follow suit.
bfinance expects portfolios in the industry will shift through 2020 towards having more exposure to private markets and lower exposure to equities.
It reported some differences, including a swing away from fixed income, with 23 per cent of investors dampening exposure versus 12 per cent increasing and a reduction in sovereign debt exposure.
Only 13 per cent of investors said the inability to travel and do face-to-face visits would pose a major obstacle to selecting new managers and investments, while 31 per cent said it presents no obstacle.
Kathryn Saklatvala, head of investment content for bfinance said there is more volatility and upheaval in store as the “true nature of COVID-19 becomes clearer”.
“While such periods are uncomfortable, they are also crucially informative for investors seeking to understand the diversification and resilience of portfolios, the discipline and skill of asset managers and the [weak points] in risk management capabilities or processes,” Ms Saklatvala said.
“It is great to see the majority of investors reporting satisfaction with overall portfolio performance, risk management and active management results across the majority of asset classes, although there are important changes underway on all fronts.”
Illiquid asset classes scored relatively high levels of satisfaction. Two-thirds of investors said they were happy to use the valuation estimates provided by their usual channels, while 24 per cent said they use a public markets equivalent for modelling the potential valuation changes in their portfolios and a tenth said they are marking down estimated valuations more severely than their asset managers.
One-third of investors (33 per cent) said they have already invested in distressed or opportunistic strategies that explicitly seek to benefit from the COVID-19 fallout, while a further 22 per cent indicated they are interested in pursuing such opportunities in the coming months.
