Institutional investors are curbing their enthusiasm.

Despite enjoying better-than-expected returns in 2013, institutional investors are significantly reining in their return expectations for 2014 and turning to alternative – and illiquid – asset classes alongside global equities, according to the latest AMP Capital Institutional Investor Report.

The survey of global institutional investors, who manage a collective US$2.4 trillion, found respondents’ portfolios returned on average 13 per cent in 2013. However, respondents see key risks to the global economy as stumbling blocks in achieving their investment returns for the year ahead. For the remainder of 2014, respondents expect to achieve average returns of 7.3 per cent.

Globally, respondents in Asia Pacific have the highest baseline and optimistic forecast for 2014 at 8.1 per cent and 12.1 per cent, respectively. Respondents from Europe and the Middle East have consistently lower forecasts on average than those of investors in Asia Pacific and also The Americas.

AMP Capital Chief Executive International and Head of Global Clients Anthony Fasso said: “Institutional investors enjoyed a stellar year in 2013 largely due to the bull market in equities around the world. Of those we surveyed, 93 per cent either met or exceeded their expectations. Allocations to domestic and international equities served investors well, with developed market equities performing better than those in emerging markets. However, investors’ planned allocation increases for the rest of 2014 are most pronounced in alternative assets especially in private equity and direct real estate and infrastructure. This is a continuation of the trend that we have highlighted in earlier issues of our Institutional Investor Report series.

“Looking ahead, investors have uncertain expectations. Their concerns are based around the risks they see to the global economy including the ongoing crisis in Ukraine, the end of quantitative easing by central banks and questions over the future direction of China’s economy. Despite this, the majority of investors surveyed expect to make no substantive change in their approach to seeking returns either through alpha strategies or by bearing more risk.”

Key findings from the survey include:

• Forty-five per cent of respondents expected to boost their holdings in private equity during the first half of 2014, more than a third (36 per cent) anticipate an increase in their allocation to direct real estate and almost a quarter (24 per cent) plan to boost their investment in direct infrastructure.

• Investors from Europe and the Middle East are most likely to increase their investment in direct real estate (59 per cent) and private equity investment (56 per cent). In the Americas, private equity (44 per cent) and direct real estate (22 per cent) allocations are expected to rise the most in respondents’ portfolios. Asia-Pacific investors expect to see the greatest rise in allocations to global equities (44 per cent).

• While institutional investors are continuing to increase allocations to alternative assets, the rise may be tempered as pension schemes, in particular, that are preparing to enter their drawdown phase may soon find themselves up against their governance limits for investing in illiquid assets. Two-thirds of investors have an average limit of 25 per cent on the proportion of illiquid assets they can hold and many already have an average allocation of 24 per cent.

• Thirty-one per cent of investors intend to move out of domestic equities, 26 per cent are decreasing their allocation to cash and 21 per cent said they would reduce the domestic fixed income portion of their portfolio.

• In Asia Pacific and in Europe and the Middle East, 29 per cent and 31 per cent of respondents, respectively, plan to decrease their holdings in domestic fixed income. In the Americas, 29 per cent of respondents primarily plan to decrease their allocations to domestic equities.

• Investors in the Americas have the greatest exposure to equities (on average 53 per cent), followed by Asia Pacific (46 per cent) then Europe and the Middle East (37 per cent).

• Average allocation to fixed income is highest in Europe and the Middle East (37 per cent) compared to Asia Pacific (21 per cent) and the Americas (20 per cent).

• Survey respondents have limited interest in considering environmental, social, and governance factors when making investment decisions despite evidence they add some value.

Click here for a full copy of the report.

The post Equities drive positive returns for institutional investors as interest in alternatives continues to rise appeared first on AdviserVoice.

The survey of global institutional investors who manage a collective US$1.9 trillion revealed a net increase in allocations to alternative investments1 in Q1 2013.

Almost a third of survey respondents anticipated an increase in their allocation to alternatives in 2013 with listed and unlisted real estate and infrastructure making up one of the fastest growing segments.

Key findings

• Almost 40 per cent plan to increase their investments in direct/unlisted investments in 2013, suggesting investors are seeing private, direct investments as a source of attractive returns.

• Thirty-six per cent of respondents in Asia anticipate increasing their direct/unlisted investments in the year ahead, while 46 per cent of those in Europe and 38 per cent in the Americas foresee such a change.

• Real assets already play a substantial role in investors’ existing asset allocation strategies with 30 per cent holding more than 10 per cent in real assets. Asked whether they were likely to increase their allocations to real assets, 72 per cent of respondents said they would be most likely to increase investment in real estate, 56 per cent in infrastructure, 28 per cent in infrastructure debt and 17 per cent in commodities (with 22 per cent citing other real assets).

• 46 per cent of European investors expect to allocate more funds to real assets in 2013, compared with only 18 per cent in Asia and 28 per cent in the Americas. • Almost 50 per cent of these European respondents expect to invest in more direct, unlisted investments, focusing on infrastructure and infrastructure debt, whereas in Asia, respondents showed the greatest interest in real estate, infrastructure and infrastructure debt. • 32 per cent of survey respondents said they were more likely to expand into new asset classes – including infrastructure, private equity, real estate and renewable energy – when asked what structural changes they expect to make in the year ahead. Twenty-seven per cent said they expect to limit risk in various ways and 24 per cent expect to increase their roster of managers.

• There’s no sign the ‘great rotation’ from bonds to equities has eventuated amongst institutional investors with seventy-nine per cent of institutional investors polled replying that they had no plans to move out of cash and fixed income this year. Global and domestic government bond holdings were increased by 29 per cent and 28 per cent of respondents respectively in Q1 2013. Portfolio rebalancing in Europe will not come at the expense of cash or fixed income allocations and only 9 per cent of institutional investors in Europe plan to move out of cash or fixed income compared with 23 per cent in the Americas and 27 per cent in Asia.

• Institutional investors in Asia increased their investment in domestic government bonds, listed bond funds, global government bonds, mezzanine debt and other debt instruments in Q1 2013. This growth in fixed income allocations in Asia is likely to continue in the second quarter, while interest in direct/unlisted investment among respondents in Asia is comparable with respondents in Europe and the Americas.

AMP Capital Chief Executive International and Head of Global Clients Anthony Fasso said: “The trend for large institutional investors globally to increase their allocations to alternative asset classes is set to continue.

“This suggests that investors are seeing private, direct investments as an attractive source of alternative returns with less volatility than long-term equity and bond investments, despite the often illiquid nature of direct investments such as private equity, infrastructure and direct real estate,” he said.

“A rotation out of bonds and into equities has not been widely adopted among global institutional investors. Rather we see them moving out of cash and into both bond and equity investments, and making shifts within their fixed income investments by moving away from sovereign bonds and into high yield corporate debt,” Mr Fasso said. For a full copy of the report visit www.ampcapital.com/iir.

1 Listed real estate, direct real estate, listed infrastructure, direct infrastructure, infrastructure debt, private equity, hedge funds, commodities and cash.

The post Global institutional investor allocations to infrastructure and real estate to rise appeared first on AdviserVoice.