Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
This is where pension funds are looking to deploy capital
Global investment consultant and support network to the pension fund industry, bfinance, this week released its latest Market Intelligence and Market Trends report, covering the final quarter of 2021. While the world has changed dramatically since the calendar turned over, there are some powerful insights for financial advisers and other asset allocators.
According to its barometer and data, bfinance found that the multi-manager sector in general had taken stock of the growing disruptions to the macroeconomic environment in December 2021, and “incrementally reduced their equity exposure in favour of bonds and other diversifiers.” In fact, the research suggests that the average equity exposure fell to 44 per cent, a full 3 percentage points below the end of the third quarter.
“Investors have been caught between the need to reap the benefits of strong global equity performance and the imperative to mitigate the risk of heightened market volatility as central banks begin to taper their asset purchase programs” bfinance explains, which was a key driver of capital flows. On a broad level, the number of searches made for its clients, which are sovereign and pension funds around the world, grew another 31 per cent in 2021 as investors turned to opportunities after a difficult 2020.
A key priority has been in identifying “new sources of income” as traditional fixed-income allocations including government bonds are challenged by higher rates. This has come home to roost in the first quarter, with many long-duration strategies showing near-double-digit losses.
Bfinance highlighted that “investors have been focusing on strategies that offer income plus inflation protection and have been directing resources to private debt, infrastructure and real estate” as the search for yield pivots towards real assets. In fact, these three asset classes alone represent 84 per cent of all search activity in private markets.
Following a similar vein, interest in private markets including private equity, venture capital and the like “continued unabated,” representing nearly half of all new manager searches, 49 per cent to be specific, with investors clearly seeking correlation benefits and limited volatility.
The group also reported a surge of search activity for emerging market debt ahead of the Russian invasion of Ukraine, accounting for 29 per cent of all asset-class-specific searches in 2021. The primary reason appears to be the imperative to find alternative sources of income in an increasingly challenging environment.
