Investors adopt active strategies during global political instability: Schroders' perspective
In the face of structurally higher interest rates and a volatile market environment, financial markets are adjusting, with institutional investors increasingly turning to active management as a strategic response. This shift, driven by global economic and geopolitical uncertainty, is reshaping the investment landscape.
Volatility and uncertainty have refocused investors' attention on active management as a means to enhance portfolio resilience and navigate uncertainty. Institutional investors are prioritizing diversification, quick response to market changes, and capturing excess returns.
The trend towards active management is reflected in the preferences of institutional investors. Among the Private Debt and Credit Alternatives (PDCA), direct lending remains the most popular choice, with 73% of investors opting for this strategy. However, infrastructure debt is a close second, favoured by 64% of institutional investors within PDCA. Securitised products follow closely behind, chosen by 60% as an alternative to direct lending.
Investors are also increasingly focused on resilience, seeking strategic returns through diversified global equities and specialist, conviction private equity. High-yielding equities are chosen by 41% of investors, while active public corporate bonds are selected by 33%.
The growing interest in alternatives, despite fee compression in some asset classes, underscores a focus on portfolio objectives over cost minimization. Private markets and sustainable investing are notable areas of interest, aligning with broader trends towards active management and diversification.
Four in five investors are set to increase their allocation to actively managed strategies this year, reflecting a belief that active strategies can outperform passive approaches in volatile markets. This shift towards active management is seen as crucial for building portfolio resilience, enhancing diversification, and lowering volatility, helping investors navigate uncertain economic conditions more effectively.
Johanna Kyrklund, group chief investment officer at Schroders, comments that active management is indispensable amid today's fragmented markets. "Active management provides the control investors need to manage complexity, create portfolio resilience, and seize opportunities," she says.
In this context, investors are turning to active management and a blend of public and private markets. The search for income is evolving, with greater emphasis on multi-channel, risk-adjusted sources like infrastructure debt and securitised credit.
Sources: [1] BlackRock, 2021 [2] State Street Global Advisors, 2021 [3] Schroders, 2021 [4] Mercer, 2021
Institutional investors are prioritizing alternatives within private markets for investing, with direct lending being the most popular choice among Private Debt and Credit Alternatives (PDCA) at 73%. As a strategic response to volatility and uncertainty, investors are also focusing on resilience and diversifying their portfolios through active management of strategies like infrastructure debt, sustainable investing, and a blend of public and private markets.
