According to a new survey from State Street, institutional investors still retain high levels of confidence in their asset managers amid the COVID-19 crisis. Specifically, 76% of institutional investors stated that they have faith in their asset managers’ ability to navigate the crisis, while a similar percentage of respondents (74%) rated the communication and support from their asset managers as either ‘strong’ or ‘very strong.’
The research, conducted by Core Data in April 2020, surveyed 250 investment professionals at pension funds, endowments and foundations, insurance companies, sovereign wealth funds and other institutions managing assets globally. The study collated their views on the impact of the COVID-19 pandemic and how asset managers have handled the crisis.
Globally, market commentary and strategic views from asset managers have been overwhelmingly viewed as the most important ways managers can help institutional investors (76%). In addition, 32% of institutional investors would like better support from their managers in this area. Around one-third of investors are keen to get more information on ‘investment opportunities assessment’ (36%) and ‘timing for action and reaction’ (34%).
Another important form of support from asset managers was ‘proactive and responsive relationship managers’ (45%). The rising importance of technology during the crisis due to social distancing and lockdown measures meant that 44% of respondents also valued managers’ use of technology to communicate important updates.
“In a more challenging operational environment, asset managers globally have continued to show their value to institutional investors by providing important insights and leveraging technology to communicate those views,” John Lehner, global head of the asset manager segment at State Street, said. “Though, there appears to be an opportunity for asset managers to provide more strategic views and forecasts through technology, such as podcasts, webinars, video conference calls and online presentations.”
Accounting for the high levels of coronavirus-induced market volatility in Q1/20, 64% of institutional investors admitted they may fail to meet their short-term targets. Nevertheless, more than half (56%) believe they will still meet their long-term investment objectives.
“COVID-19 took both investors and managers by surprise,” Lehner said. “Despite concerns about managers’ ability to predict the impact of the crisis and the hit it might have on short-term investment objectives, it is also clear that there is strong support for asset managers to navigate the crisis and deliver returns in the long term.”
Despite market volatility, more than half of institutional investors (52%) globally are looking to increase allocation to equities in the next three to six months as they hunt for value. This was followed by an appetite to increase allocations to active investments (35%), private credit (35%) and cash/money market funds (31%).
The majority of institutional investors around the world do not expect a rapid ‘V-shaped’ recovery from the crisis, with two-thirds (66%) not expecting economic activity to return to normal before 2021 or even later. There is also widespread doubt that government and central bank interventions to alleviate the crisis will lead to a faster recovery than after the Global Financial Crisis in 2008, with 51% of respondents saying it is too early to tell and 15% anticipating a slower recovery.
“The findings reaffirm the mismatch during this crisis between expected economic and equity market performance,” Lehner said. “While institutional investors are braced for a long economic recession and slow recovery, almost 41% expect equities to recover by the end of September 2020, increasing to 59% by the end of 2020.”
The pandemic also has created major challenges for back office functions, with the survey revealing that 37% of institutional investors found securities valuations ‘challenging’ or ‘extremely challenging’ during the crisis. This was followed by liquidity (34%), timely reporting (34%) and cash forecasting (30%).
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