Well-capitalized investors in the post-covid market landscape may be looking to put more money toward multi-asset strategies and shifting money into private (away from public) markets. This observation is according to Nuveen, the $1.2 trillion investment management arm of pension giant TIAA, which on Wednesday released the results of its first-ever global investor survey.
The survey was based on responses from 700 of Nuveen’s investment clients across multiple continents, all representing firms with more than $500 million in managed client assets. Respondents were quizzed about future market expectations in October and November 2020.
Nuveen found 79 percent of investors said they had made “no significant changes” to their portfolios (as of that time) due to covid-19. However, more than half (52 percent) said that portfolio changes in 2021 would be driven by the market impact of the pandemic, making this the most often cited factor. Market volatility and interest rate changes were the two next most important factors, both cited as important by 42 percent of investors.
When considering new strategies, Nuveen’s survey revealed its investors planned to rely heavily on multi-asset approaches. Global investors cited multi-asset as the most favored approach for portfolio construction (58 percent), with liability-driven investment (LDI) at 36 percent and outcome-focused/oriented strategies at 35 percent.
Additionally, Nuveen’s clients said they would be looking to private markets for alternative investment strategies. Eighty-six percent of institutional investors currently invest in alternatives and, of those now invested, two-thirds of whom said they plan to increase their alts allocations in 2021. More than half (55 percent) of alts investors said they plan to make a strategic shift away from public to private markets in the next 12 months.
“In a low-return environment, the shift to private asset classes and other alternatives has accelerated as more and more investors search for sources of alpha that are ‘idiosyncratic’— that is, not strongly correlated with other kinds of assets,” said Michael Perry, Head of Nuveen’s Global Client Group, which led the survey. “Rather than tapping private markets opportunistically and tactically to boost returns, investors are making private investments a more strategic and critical part of their investment approach.”
Increasingly, Nuveen found, many investors are directly sourcing their own investments, such as buying real estate or securing their own private equity deals; of those who currently have an alternatives allocation, 80 percent are invested in real estate, 70 percent in private equity and 63 percent in infrastructure.
Nearly half (48 percent) of investors said that allocating to alternative investments (i.e., non-equity and debt instruments) and into private markets will increase because they consistently deliver better returns than public investments. However, 53 percent also agree that it is difficult to find true, idiosyncratic alternatives.
Investors question ESG as alpha-driver
More than half (53 percent) of alternatives investors are looking for more specialized, off-market alternatives opportunities and 58 percent are seeking new strategic partnerships for co-investment. Nearly seven in 10 (69 percent) say they also plan to seek out in 2021 alternative investments that are oriented toward environmental, social and governance (ESG) factors.
“Interest in ESG investing is strong and building, and the survey suggests that investors would integrate these strategies even more extensively if they had more information about how they perform,” said Amy O’Brien, Nuveen’s Global Head of Responsible Investing.
“More and more, market research is helping make the case that ‘responsible investing’ can deliver competitive returns, but clearly there is a need to put more effort into validating the investment proposition along with the positive impact,” she said.
Nuveen’s survey found that “organizational values and social responsibility”–not risk/return profiles–are “overwhelmingly the primary driver of ESG integration across investor types and regions.” North American investors were the least likely to integrate ESG factors into their investing decisions, while also prioritizing the importance of validating ESG as a driver of alpha (outperformance). EMEA (Europe, Middle East and Africa) overwhelmingly listed organizational values as a primary reason for integrating ESG factors into their portfolio decisions. Asia-Pacific investors tended to evaluate ESG factors across many more dimensions, placing much less overall importance on documenting ESG as an alpha generator.
Nuveen’s study identified a need to resolve “conflicts” between “philosophical views and the practical realities of ESG integration,” as well as grasping what it calls “varying definitions of the ESG dream state” and overcoming perceived barriers on the part of investors to that “future ideal.” Survey respondents identified the top three barriers to greater adoption of ESG factors as “lack of standards” (58 percent), return targets (42 percent), and reporting burdens (40 percent).
