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Smart money is pouring into private markets and away from risk assets
Over half of Australian investors are underweight risk assets in comparison to just one-third of their global peers after two years of volatility and rising inflation, according to research from independent investment consultancy bfinance. Data showed that classic diversification strategies using bonds and equities have provided investors with little protection triggering a shift to alternatives and private capital.
Bfinance surveyed a large group of senior investors in 40 countries to see how they had fared over the last few years and what they expect for the future. The report found that there was a seismic shift of assets into private markets to diversify away from risk.
Business development director at bfinance, Sebastian Mays (pictured) said: “Another interesting difference between Australia and its global peers within the survey is the underweighting towards risk assets. During the current period, 52 per cent of Australian investors are currently underweight risk assets, compared to 28 per cent of their global peers.”
Under half of the Australian investors have moved into private markets strategies and are happy to increase their allocation going forward.
“For Australian investors, there is a strong level of satisfaction towards private market strategies and their performance,” explained Mays.
“Particularly for institutional investors, the low volatility of private assets can be extremely important both from an asset allocation viewpoint but also from a Your Future Your Super benchmark point of view.”
Sovereign wealth funds have also begun to shift investment funds into private markets amid inflation and uncertainty.
According to Invesco’s tenth global sovereign asset management study, rising inflation has prompted an asset allocation rethink in favour of private markets with an expectation to increase allocations to North America and Asia Pacific, away from Europe as Ukraine-Russia conflict dents confidence.
“While we expect the market to remain volatile for some time ahead, with inflation less of concern across this region, there is still room for policy stimulus to support the economy.” – Terry Pan
Chief executive officer for Greater China, Southeast Asia and Korea at Invesco, Terry Pan (pictured, left), highlighted a confluence of factors that had brought unprecedented uncertainty over the beginning of the year to many finance professionals, and that it may take some time for risk-on sentiment to rebuild.
“In Asia Pacific, investors are closely eyeing how COVID restrictions in China will evolve, as the government continues to pursue its ambitious economic growth target,” Pan said in the latest Invesco Global Sovereign Asset Management Study.
“While we expect the market to remain volatile for some time ahead, with inflation less of concern across this region, there is still room for policy stimulus to support the economy.”
When asked which asset classes to increase, maintain, or decrease exposure to over the next year, private equity was the most popular (net +29 per cent), followed by unlisted real estate at (net +23 per cent).
By contrast, respondents were most bearish on fixed income (-12 per cent) and cash (-4 per cent), while sentiment on equities is broadly unchanged (+1 per cent).
