Investment consultancy bfinance has released the results of a survey showing how the Ukraine conflict and rising inflation fears are changing sentiment amongst investors.
A total of 48 percent of investors had some exposure to Russia. During the first three months of the year, ten percent of those with direct exposure were able to fully exit these positions, and a further 35 percent were in the process of attempting to do so – this being hampered by illiquidity and lock-ups.
The poll was conducted of 418 institutional investors from 39 countries, between 29 March and 4 April.
Over the three months, satisfaction with manager performance slumped in emerging market equity (23 percent satisfied) and emerging market debt (24 percent satisfied). The numbers held up better for alternative risk premia managers (51 percent) and hedge fund managers (57 percent).
The ESG sector has been in favour for the last two years. But 39 percent of investors said that recent geopolitical developments will lead or have already led to adjustment of their ESG approach, either in-house or via changes made by their external asset manager partners. Several others also cited that while the conflict had not itself affected their processes, it reinforced the need for a sophisticated ESG approach. The use of controversial weapons in Ukraine is coming under renewed scrutiny, alongside exposures to emerging markets and fossil fuel firms.
With four in five investors expressing concern that inflation and rising rates would impair their ability to achieve medium-term investment objectives, 41 percent of investors expect to increase the inflation sensitivity of their portfolio in 2022. And 14 percent of investors are “very concerned” about the impact of inflation and rising rates on their ability to achieve medium-term investment objectives; 68 percent are “moderately concerned”.
Macroeconomic conditions are boosting allocations to illiquid strategies, with real assets leading the way. The poll found 46 percent of investors expect to increase exposure to infrastructure in the next 12 months against 31 percent in the last 12 months. Strong momentum is also evident for surging Private Debt and Real Estate allocations, with 27percent of investors increasing exposure to equities in the past year while 22 percent plan to do so. Other allocations on the rise include Private Equity, Hedge Funds and Agriculture/Forestry.
Kathryn Saklatvala, head of investment content at bfinance, said: “To some extent, the asset allocation changes we are seeing here represent a continuation of some longer-term shifts, such as the shift in favour of illiquid strategies and real assets.
"Yet investors’ concerns about inflation and rising rates—which come through in these statistics—are giving greater impetus to these trends. It is particularly interesting to see the large minority of respondents for whom geopolitical developments are prompting a change in ESG approach. This has chiefly been focused on topics such as weapons manufacturers, energy companies and country exclusions.”
