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Investors alter expectations

Oksana Patron19 May 2022
Climate change

With rising inflation and geopolitical implications of Russia’s invasion of Ukraine, those investors who had previously expected the post-pandemic economic recovery will need to alter their expectations and seek to enhance sources of real return, income and diversification.

According to bfinance’s Q1 2022 Manager Intelligence and Market Trends report, the post-pandemic reality saw a slower growth and more volatile markets, forcing investors to adjust which was reflected in the bfinance Risk Aversion Index which rose from 0.50 to 0.79 (markedly risk averse).

While increased volatility hit the global equity and fixed income asset classes, investors decided to pursue diversifying and defensive strategies, reduce their exposure to Eastern Europe and divest entirely from Russia, wherever possible.

This led investors to focus more on new equity search initiatives on global emerging markets. At the same time, private markets continued to attract investors who were seeking alternatives to more traditional equity and fixed income allocations, bringing real estate into the picture with the sector now accounting for 26% of all private markets manager search, representing an 11 percentage point increase from last year.

The other alternative sector, trade finance, also continued to draw in investors, accounting for 34% of all new searches in private markets in the 12 months to March, 2022.

According to the report, hedge funds and other liquid alternative strategies continued to perform well in Q1 despite challenging market environment.

“In Q1, we observed a tactical recalibration as many companies shifted their attention away from direct investment initiatives towards multi-asset and overlay projects while still maintaining the same objectives: diversifying portfolio returns and controlling traditional risk exposures,” the report read.

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