State Street: Post-pandemic asset allocation shift by institutional investors

State Street: Post-pandemic asset allocation shift by institutional investors

May 2, 2022

Asset Allocation
Asset allocatie (01)

State Street Corporation and the International Forum of Sovereign Wealth Funds (IFSWF), a global network of sovereign wealth funds from 40 countries, released a new report revealing a major shift by large institutional investors towards assets and markets considered to be less risky.

The report looks at the aggregated activities of long-term institutional investors representing more than $43 trillion in assets under custody and administration at State Street.

Key findings:

  • Institutional investors’ risk aversion turned negative in early February 2022 and reached its lowest point in two years. Institutional investors’ capital flow decisions became more broad-based, with evidence of risk-off behaviour manifesting across investors’ equity, fixed income, foreign exchange and asset allocation decisions over recent months.
  • The report reveals strong capital outflows from emerging markets – the largest level of selling observed over the previous five years – have been matched by robust demand for stocks in developed markets.
  • Institutional investors’ asset allocation decisions suggest that they are no longer adding to their equity exposure – which they had been doing since Q1 2020 – and are instead adding to their fixed-income and cash balances.
  • In fixed income:
    • Heightened geopolitical risk has seen capital outflows from emerging-market sovereign debt
    • High-quality, developed-market sovereign bonds are maintaining stable capital inflows
    • Euro and US dollar-denominated corporate credit have also seen outflows
    • Renewed appetite for the US Treasury Inflation-Protected Security market
  • 2021 is on course to set the highest private equity fundraising on record. With data from the first three quarters of 2021 available, buyout and venture capital funds have surpassed the capital raising high-water marks of 2020, while fundraising in private debt has slowed in 2021 compared to 2020.

Neill Clark, head of State Street Associates, Europe, Middle East and Africa (EMEA) said:

“As economies around the world emerged from the long shadow cast by the COVID-19 pandemic, investors are faced with new risks. Today, risk assets are re-pricing due to international conflict, inflation, and central bank policy responses. Following a period of opportunistic rebalancing and selective risk-taking during 2020, the past year has seen institutional investors moving towards safer assets and markets. Their asset allocation decisions suggest they are no longer adding to their equity exposure – which they had been doing since Q1 2020 – and instead, are adding to their fixed-income and cash balances.”

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