2018 Asset Owner Survey

Many of our LGPS clients have pushed ahead strongly with new private market investments rather than ‘waiting for the pools.’ Last week brought the latest example: a private debt search by five London boroughs who are also members of the London CIV group.

While the post-GFC phase was marked by diversification towards real assets, recent years have seen greater emphasis on diversification within real assets. How beneficial is this type of diversification, particularly in the later stage of the market cycle? With both asset owners and asset managers now taking a more integrated approach to this sector, what are the implications and complications?

Investors today are being presented with an increasingly diverse menu of smart beta strategies. The newest products claim to incorporate the latest research innovations, particularly those relating to construction and implementation. This new generation is particularly evident in “multi-factor smart beta” - the most complex sub-sector, from an implementation perspective.

Asset managers are encouraging investors to look at securitised credit (MBS / ABS) in the current climate. While the pitch is compelling, there are notable headwinds to consider and there have been significant changes since 2013, such as the rise of new instruments and a changing asset manager universe. This brief note offers a fresh look at the sector.

Our quarterly snapshot of the key developments within equity, fixed income and alternative investments, including analysis of which asset manager groups performed well and which didn't. Q4 rounded off a surprisingly risk-hungry year as positive economic data overshadowed persistent geopolitical concerns.

Three years ago, we witnessed a wave of investment in Multi Asset Credit (or “MAC”) strategies. Not to be confused with Absolute Return or Unconstrained funds, which also experienced a surge in popularity, MAC products were marketed with a yield-boosting agenda and an eye towards upcoming rises in interest rates. Their performance has largely failed to impress, but now may be the time for these strategies to deliver....

For most asset owners, trade finance - a quiet and esoteric member of the alternative credit family - has only appeared on the radar as a potential investment strategy during the past five years.

For EMD investors, one key decision has dictated performance over the past decade: the use of local versus hard currency bonds. Meanwhile, ‘Blended EMD’ funds have become increasingly popular. But what are these strategies really designed to accomplish and how are they performing?

Amid the latest round of Direct Lending fundraising, a disturbing theme has started to emerge. Many managers, it seems, are rather keen to lower their hurdle rates – the point at which lucrative catch-ups and performance fees kick in. It is a step that a number of their private equity counterparts have already taken.

Under scrutiny, three recent Infrastructure manager searches reveal significant changes in exposures and strategies as funds reach for returns.

Timberland is a relatively established, albeit small, asset class. In the past three years, however, a distinctive new group of agriculture funds have come onto the scene, encouraged by investor appetite for niche real assets.

bfinance’s quarterly report in November 2017: read the team’s latest insights on institutional investor activity, risk appetite, market developments and asset manager performance across all major asset classes.

The latest bfinance data reveals major changes in institutional investors’ equity mandates through 2017. This collection of articles explores the most significant shifts and addresses key debates within emerging market equities, ESG integration and active/passive management.

The resurgence of investor appetite for emerging markets is proving to be the most significant allocation trend of 2017, at least according to bfinance data on new mandates. The positive macro tailwinds witnessed in the aftermath of President Trump’s election have simultaneously sent emerging market equity to the top of the performance rankings.

The year was 2009. Amid a climate of investor cynicism, disappointment and self-examination, two papers were published that would fundamentally change the way that the investment industry viewed active equity management.

We were recently invited by FT’s Pensions Expert to provide an article debating the potentially thorny question: Is ESG Compatible with the Rise of Passive Management? This brainteaser was born out of a plausible tension between two of this decade’s most significant trends.

The financial crisis ushered in a new era of unlisted infrastructure investment. Three trends - high appetite for illiquid investments, the desire to reduce equity risk exposure after the lessons of 2008 and the subsequent need for income generation in an era of low rates - converged to create a ‘perfect storm’ of demand.

Diversification is a very personal property. The definition of a good diversifier varies with each investor’s existing exposures, liquidity profile and risk tolerance, as well as the market environment. Today, one of the most significant allocation trends among bfinance clients appears to be a shift towards liquid diversifying alternatives.

There is now a critical mass of Alternative Risk Premia managers with live track records near or above the three-year mark. And their performance is illuminating…

Today’s climate raises new FX-related headaches for investors, provoking a rethink of historic decisions to hedge currency risks, leave them unhedged or delegate to fixed income and equity managers. Active currency overlays appear to be increasingly popular.

The ‘sub-advisor fund of hedge fund’ (or ‘fund of sub-advisor’) model is the latest innovation to disrupt the hedge fund sector.

New bfinance data reveals falling fees in several sectors, especially where providers have been under pressure from cheaper competitors or the investment landscape has evolved.

The pile of dry powder chasing corporate direct lending has never been higher. Yet, with rising risks, a deep understanding of what’s under the bonnet is increasingly vital to successful implementation. Explore the recent spread compression, the changing composition of senior debt funds and the evolving nature of unitranche loans.

Investors’ costs have never been more vigilantly scrutinised than they are today. New bfinance data published in Investment Management Fees: New Savings, New Challenges (May 2017) reveals falling fees in several sectors, especially where providers have been under pressure from cheaper competitors or the investment landscape has evolved.

Unitranche loans, which increasingly dominate European private debt funds and also play a key role in the US market, were only invented a decade ago. GE and Allied Capital (later Ares) teamed up to offer a single-tranche of lending where the first-out position was provided by GE and the second-out by Allied.

The persistence of a record low-yield climate has increased the appetite of international investors for this high-quality asset class.

Throughout 2016, innovative ESG-focused pension funds have sought ways to integrate sustainability factors in asset classes where these considerations are not necessarily mainstream. One such investor is the Environment Agency Pension Fund: their September 2016 search for a private debt manager placed ESG issues high on the priority list.

Environmental, social and governance considerations are increasingly important across all asset classes. Yet ESG priorities and principles varying hugely among investors, creating interesting dynamics in manager search and selection.

When implementing an allocation in the rapidly-growing alternative risk premia (“alternative beta” sector, a great deal can fall through the cracks between theory and practice.

A detailed examination of a recent Global Equity search for an investor for whom Sharia compliance was critical. Part of bfinance’s popular ‘DNA of a Manager Search’ series.

The increasingly popular Absolute Return fixed income space includes a diverse group of strategies and labels: Unconstrained Bonds, Multi-Asset Credit (a.k.a MAC), Strategic Bond and Fixed Income Opportunities.

Although CTAs bounced back in the fourth quarter of 2017, with the return of trending markets, full-year performance figures for managed futures have proven lacklustre, if considerably better than the broadly negative results of 2016.