A new Cogent Syndicated report from Escalent shows alternative investment vehicles, including private equity, real estate and real assets, are drawing widespread attention and action among institutional investors as they seek to grow their portfolios at a quicker pace than what traditional investments can offer in today’s market. Moreover, sustainable investments have become serious additions to the playbook for this sophisticated investor group, paving the way for expanded interest in additional socially conscious strategies with emphasis on diversity, equity and inclusion.
Those are the latest findings of the 2022 US Institutional Investor Brandscape® report, which identifies key trends in investment strategy and asset manager selection, use and loyalty. The report has been published annually since 2010 by Escalent, a top human behavior and analytics advisory firm with extensive financial services experience.
“Between inflation, geopolitical uncertainty, the risk of a global recession and ongoing stock market volatility, institutional investors are increasingly adding alternative investments to their portfolio allocations,” said Linda York, senior vice president at Escalent. “From cryptocurrencies and real estate to commodities, investors are acting on better potential earnings and stability.”
Institutional investors are turning their attention to alternative investments at unprecedented levels. Three-quarters (75%) are using private equity, while nearly eight in ten (78%) now hold real assets or commodities, up from 67% a year ago. Moreover, 42% of institutional investors report allocations to digital assets and cryptocurrencies, significantly higher than the 28% recorded in 2021.
Other emerging investment trends include the increased allocation to environmental, social and governance (ESG) investments. Nearly two-thirds (65%) of respondents have already implemented an ESG strategy or are likely to do so in the next 12 months, compared with just 28% a year ago. Environmental concerns lead the key factors driving interest in and adoption of ESG investments, including climate change, nuclear energy and sustainability.
Additionally, institutional investors are growing more aware of Diversity, Equity and Inclusion (DE&I) investments, which are likely to follow the rise of ESG investments closely over the coming year as attention grows. Nearly one-third (30%) of institutional investors indicate DE&I is a highly important aspect influencing their allocation decisions. Further, institutional consultants and outsourced chief investment officers expect asset managers to be able to showcase their DE&I practices and policies as this factor is increasingly scrutinized.
“Pure profit is no longer the sole benchmark for asset managers,” added York. “Across the board, institutional investors are more and more conscious of the world around them and the role their investments play in that world. There is a very real opportunity for asset managers to offer unique investments in which their customers can take pride.”
The study also evaluated investors’ changing communication preferences, which greatly changed in the wake of the onset of the COVID-19 pandemic. While the past two years have pushed institutional investors to integrate more virtual communication methods into their daily practice, many consider in-person meetings as the most effective way to evaluate new asset managers, a testament to the value of face-to-face exposure on building new relationships, given the challenges firms face in building the same level of rapport remotely.
“At the end of the day, asset managers need to remember this is largely a people business,” said York. “Building long-lasting relationships is the ultimate path to success in the institutional market.”
To learn more about the US Institutional Investor Brandscape® report, visit escalent.co.
Cogent Syndicated conducted an online survey from October 13 to December 18, 2021 of a representative cross section of 708 institutional investors. In order to qualify for this study, survey participants were required to be managing institutional assets of at least $100 million and play a direct role in the evaluation and selection of investments or asset managers within their organization. In determining the sampling frame for this study, Cogent relied upon the Standard & Poor’s Money Market Directories (MMD) database of institutional investors. To ensure the population for this research was representative of the universe of institutional investors, strict quotas were established based on a nested classification of institutional investor category and size of assets. Minimal weighting was applied to adjust for purposeful deviations from the actual marketplace distribution. The data have a margin of error of ±3.68% at the 95% confidence level. Cogent Syndicated will supply the exact wording of any survey questions upon request.
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