High levels of global inflation and recessionary fears are forcing institutional investors to radically shift their portfolios away from equities and bonds, according to new research from Clearwater Analytics (CWAN).
A study of over 130 institutional investment firms representing more than $9 trillion in assets under management (AUM) found pessimism in stock markets on the rise, with only 17% favouring equities – compared with 38% in a Clearwater poll conducted just six months ago.
When it comes to the impact of inflation on investment strategies, interest in floating rate securities fell surprisingly, from almost 50% all the way down to around 20%. A third said their fixed income risk reduction was focused on duration. Finally, money markets and real assets appear to be preferred investments in the current climate – with 38% and 30% citing them respectively.
The findings follow the release of CPI data earlier this week showing UK inflation at its highest point in over forty years – hitting 10.1% in July. With numerous asset managers reporting first half losses in the past few weeks, over half of the respondents said that they are avoiding realising losses for P&L purposes, while just under half (48%) are very or extremely concerned that we are heading into a prolonged recession.
The research showed a growing need for institutional investors to be able to easily see exposures across sectors and risk parameters amid heavy market volatility – with two thirds stressing the importance of this. What was worrying with this in mind was that over a third believes that their investment technology platforms are lagging behind industry standards.
“The power pincer movement of low growth and rising inflation paints the bleakest of bleak pictures. But while profits are being squeezed for investors, both in investment return and across their companies given inflation, there is still an underlying sense of optimism,” according to Gayatri Raman, President of Europe and Asia at Clearwater Analytics.
“Over 40% of the firms believe that there are plenty of opportunities that have been presented by the downturn in global markets. Key to realising these opportunities is getting a more granular understanding of exactly how portfolios are being affected to help manage expectations. Being able to project cash flows and income provides perspectives that can help investors navigate through the likely recession and make better informed long-term decisions.”
About Clearwater Analytics
Clearwater Analytics is a global industry-leading SaaS solution for automated investment data aggregation, reconciliation, accounting, compliance, risk, performance, and reporting. Each day, the Clearwater solution reports on more than $5.6 trillion in assets for clients that include leading insurers, asset managers, corporations, pension plans, governments, and nonprofit organizations – helping them make the most of their investment portfolio data with a world-class product and client-centric servicing. Investment professionals around the globe trust Clearwater to deliver timely, validated investment data and analytics. Additional information about Clearwater can be found at clearwateranalytics.com, LinkedIn, and Twitter.
Source: Clearwater Analytics