Schroders

The vast majority of local and global institutional investors plan to increase their private assets exposures over the next 12 months amid a growing focus on the benefits of diversification, the Schroders Institutional Investor Study 2021* has found. 

Schroders’ flagship annual institutional study - first launched in 2017 - encompassing 750 investors and $26.8 trillion in assets spanning 26 locations, found that 90% of investors are aiming to increase their allocations in one or more private assets classes over the coming year. 

Kondi Nkosi, Country Head at Schroders South Africa, says that the growing importance of private assets was further emphasised by 67% of South African (SA) institutional investors stating that they will continue to diversify into alternatives and private markets, and reduce their listed exposures. “This growing local trend - which is significantly higher than the global benchmark of 47% - is driven by the economic and financial impact of the pandemic.”

Nkosi highlights that just under half (44%) of SA investors surveyed also said that the impact of the pandemic had increased the importance of ESG considerations, with 44% citing that ESG strategies that have a ‘benefit all stakeholders’ principle at the heart of their investment process are the most appealing. 

The Study showed that the majority of South African investors (67%) were looking to increase their allocations in infrastructure equity, followed by impact investment (56%). “This indicates a strong desire to play a role in purpose-driven investment, as investors seek to be instrumental in positively contributing to society. This intent is no doubt heightened by the toll the pandemic has taken on the local economy.”

Covid-19 also seems to have increased local investors’ appetite for risk, with 44% stating that the pandemic had made them far more willing to take on risk - compared to a global 13% of investors.

A resounding 100% of investors locally - and 80% of investors globally - said the need to diversify portfolios was driving their private assets allocations. “We are seeing significant growth in appetite for private asset classes locally as investors continue to hold steadfast in their need to diversify,” says Nkosi. 

“Yet, the opportunity is not only to diversify across publicly listed and private assets, but also within private assets classes. This offers exposure to various risk and return profiles, while leveraging macro and microeconomic drivers to maximum potential,” he explains.

Track record and team stability, as well as the quality and transparency of reporting were the most important factors cited by global investors when it came to selecting private assets managers. “However, interesting to note is that when surveyed, South African investors deviated somewhat in their views from the global trend. 

“While local investors cited ‘track record’ as high importance (44%) - in line with the global benchmark - they showed more price sensitivity, with ‘fees and terms’ selected as being of equal high importance (44%) in their decision-making.

Concludes Nkosi, “Private markets are incredibly nuanced. They offer not only a wider range of risks than many investors realise, such as complexity- or illiquidity-based premia, but a huge number of private assets focused investment solutions can be tailored depending on investors’ preferences. A growing number of our clients are taking advantage of this potential as we remain focused on working in partnership with them to meet their evolving needs amid the ongoing challenges of the pandemic and broader market uncertainties.”