The years of continuing fallout and uncertainty following the global financial crisis are finally resolving into some clear patterns of investor behaviour.
This was a key finding of the annual Principal Global Investors CREATE Report, released today. The Report details the findings of a worldwide survey of 713 asset managers, pension plans, pension consultants, fund distributors and fund administrators from 29 countries. The total assets under management of respondents is US$27.4 trillion.
In the Australian context, this behaviour is exhibited in a number of ways, but most recently in a move toward real assets as ageing demographics and a move globally by governments and corporates to get out of the ‘pension business’ have pushed them to personalise risk by targeting specific investment outcomes to meet their needs.
“The destructive impact of the debt crisis on investors’ wealth has been well documented. What is less appreciated is the nature of powerful undercurrents created by the crisis when combined with ageing populations and persistent pension and retirement income deficits; nor the lasting changes triggered by them,” explained Professor Amin Rajan, CEO of CREATE-Research and the report author.
Grant Forster, CEO of Principal Global Investors (Australia) noted: “Many of the CREATE report findings about changing investor behaviours are linked to these undercurrents.”
Mr Forster went on to explain that personalisation of risk has a big downside, thus posing a complex series of challenges that the superannuation industry is beginning to understand and address.
“Personalising risk essentially entails transferring risk from those who couldn’t manage it to those who don’t understand it. The superannuation and investment industry is responding to this shift by gravitating towards global solutions with a sharpened focus on downside risk such as lifecycle, absolute returns and inflation-plus style investments,” he said.
Professor Rajan commented that, with respect to asset allocation terms, the biggest single change observed in the CREATE report since last year is a shift toward real assets.
“We are seeing moves in commercial property both here and abroad, as well as in debt and equity. At Principal Global Investors we have seen evidence of this demand reflected in an increased demand for our capabilities such as global property securities and direct US real estate, “said Mr Forster.
In addition to the real asset push, the Report found that over two-thirds of respondents wanted asset managers to prioritise a deeper understanding of the world’s prevailing debt dynamic and its risks and opportunities.
“As sovereign debt is no longer the ‘go-to’ safe asset there is increasing demand and interest in diversifying more broadly into various forms of credit which means hiring managers which can take active decisions around sovereign/credit, long duration/short duration and public/private debt,” said Mr Forster.
Aptly enough, the 2013 CREATE Report is titled Investing in a Debt Fuelled World, a topic that resonated so deeply with respondents that the survey response rate increased nearly 100% on previous years.