Troubles Ahead? Allocators Say They Are Ready

In a Mercer survey, asset owners say they feel ‘resilient’ about market risk and inflation.  



Large asset owners are confident about their positioning to withstand any upcoming threats, such as stock market downturns, low global economic growth and inflation, according to a survey by consulting firm Mercer.

The poll of 61 big allocators from 16 countries found that they feel, by sizable majorities, “resilient” to problems with markets (84%), the economy (84%) and inflation (79%) over the next 12 months. The large owners—those with $20 billion or more in assets—reported being the least resilient about factors beyond their control, such as geopolitics (69%) and stagflation (64%).

Smaller allocators—those overseeing between $5 billion and $20 billion—with fewer resources reported confidence they could face difficulties, but they were not as confident as the big players: 68% of smaller allocators, for instance, reported feeling resilient about their stock exposure.

One significant upshot of the Mercer study is that large allocators reported that their organizations intend to shrink their stock holdings over the next 12 months. Their outlook for equities is “weak,” the report stated, so 22% plan to decrease their stock exposure while 19% intend to increase it.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

The major allocators contended that they are well prepared for any turbulence. The study noted that “large asset owners’ confidence is partly attributable to action taken over the past year to manage risks.”

The most common step they have taken, per the report, is to lower their fixed-income duration, which measures how vulnerable their bonds’ values are to interest rate movement.

At the same time, most appear to shrug off any need to expand their liquidity profiles, such as by selling stakes in private assets, the in-vogue destination of institutional dollars in recent years, and in public stock, then moving into cash and cash-like instruments. Instead, 80% term their private holdings resilient.

The study pointed out that the asset owners reported feeling only slightly less resilient about their investments’ prospects over the next three to five years as they do about their portfolios’ current situations. Those reporting feeling vulnerable about their equities’ outlook over the next 12 months, 16% of respondents, rose to 27% over three to five years.

Furthermore, they contend they are likely to boost their ownership of private markets and sustainable strategies—none of them very liquid—in the coming year. Right now, the most popular private markets, with owners reporting at least some allocation, are real estate (82%), private equity (78%), infrastructure (75%) and private debt (71%).

These asset classes’ lack of liquidity does not appear to bother the respondents. In fact, around one-third of those surveyed reported anticipating increasing private credit and private equity investments in the next 12 months. The report indicated that this was “despite the fact that almost a quarter (21%) of private market valuations will require more attention in coming years.”

The asset owners surveyed also showed a preference that their assets be managed by third-party experts. Of the respondents, 11% reported managing more than 80% of their portfolios using internal investment teams, while 41% said they do not manage any of their assets in house.

The survey also found clear differences in the preference for outsourced investment management, based on the size of the asset owner’s portfolio. Among the largest asset owners, 36% reported that all their assets are managed externally, while among the smaller owners in the group, 47% reported outsourcing management of all their assets.

Within private-market portfolios, 82% of respondents reported outsourcing management of those investments. Outsourcing also dominated management of emerging markets equities (90%), high-yield debt (92%), emerging market debt (92%) and hedge funds/absolute return strategies (93%).

The asset classes most commonly managed internally were reported to be government bonds (43%), real assets (33%) and investment-grade credit (26%).

Related Stories:

Private Credit Not Likely to Run Out of Capital, per Report

Finance Chiefs Are Cheerful About the Economy’s Long-Term Prospects

Allocators’ Biggest Worries? Finding the Best Data and Tools—and ESG

Tags: , , , , ,

San Bernardino County Pension Announces Preliminary 9.3% Return in Fiscal 2024

The assets of SBCERA grew to $15.2 billion.



The San Bernardino County Employees’ Retirement Association announced Wednesday that it achieved a preliminary 12-month return of 9.3% for the fiscal year ending June 30.
 

The fund, which saw its assets grow to $15.2 billion, outperformed the fund’s actuarial rate of return of 7.25%. Annualized for the five-year period ending June 30, the fund achieved an 8.2% return over the period. Annualized over the past 40 years, the fund has achieved a 9% return. 

“Our fund is positioned well for both market volatility and long-term investments, and this year’s results continue to reflect that,” said Jared Newcomer, chair of the SBCERA Investment Committee, in a statement. 

SBCERA has a long-term, income-focused investment strategy. For the period ending May 31, the fund’s asset allocation consisted of international fixed income (20.6%), private equity and venture capital (19.5%), U.S. fixed income (16.3%), U.S. equities (13.1%), international equities (7.2%), alpha pool (7.2%), cash (7.1%), real assets (5.3%) and real estate (3.8%). 

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

“At SBCERA, we balance an opportunistic approach with a long-term investment strategy,” said Donald Pierce, SBCERA’s CIO, in a statement. “Our team will continue finding appropriate opportunities to achieve our investment return goals—no matter what the economic climate brings.” 

Earlier this year, the fund had announced a 7.3% return for the calendar year 2023. In February, the fund issued a survey to identify investment opportunities in global credit.  

SBCERA manages investments and provides retirement and other benefits for 48,000 members and beneficiaries for 17 employers throughout California’s San Bernardino County.  

CIO Webinar: A Conversation With SBCERA’s CIO 

San Bernardino County Moves to Trim Foreign Stocks 

Public Equity Allocations Lead the Way for Public Pension Funds 

Tags: , , , , ,

«