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Can market uncertainty pave the way for opportunity?

By: Jack Dominy


It is fair to say there is a lot of uncertainty surrounding markets at the moment. This is very evident in the UK institutional investment market, with drivers of uncertainty including inflation, rising interest rates, the fallout from the recent mini-budget announcement and the war in Ukraine. Indeed, the list of factors impacting decision making for pension schemes has grown to such an extent this year because of various macroeconomic events and their consequences, that it is difficult to know whether to stick or twist when it comes to assessing investment portfolios as a pension scheme.

Research in Finance has recently run a ‘current market sentiment’ survey to try to understand what is most pertinent to consultants, professional trustees and schemes at this moment in time. We asked 186 institutional investors in early October to give their thoughts on a small number of topical questions, one of which factors and events affecting their investment decision-making.

As shown by the charts below, the majority of both groups state that inflation and interest rates are having an impact on their investment considerations. Investment managers should be conscious of this and look to provide clear communication to consultants and schemes on how best to approach this high inflationary period given the structure of their in-house schemes / the schemes they advise.

Developing clear lines of communication and useful information in this area will be crucial to building trust with institutional clients over the coming months, especially with most economic indicators pointing towards a recession. Things may well get worse before they get better.

With every period of darkness, however, there is usually a chink of light to be found. It seems that chink of light in the eyes of some institutional investors can be found in the investment opportunity presented by private asset strategies. Another finding from the research is that there is definite appeal in private asset strategies, both from consultants and schemes. Real estate is leading the way in this area, with 72% of the consultants & professional trustees we surveyed currently recommending this strategy to schemes, and 60% of schemes we surveyed currently investing in this strategy.

Private asset strategies may appeal to different investors in the institutional space as a form of diversification, but also because of the potential returns on offer. Added to this, the recent consultation by the Department for Work and Pensions (DWP) on removing performance fees from the charge cap may result in reforms which will make it easier for Defined Contribution pension schemes to consider illiquid assets, including private asset strategies. It is an area we have seen grow in popularity in the institutional space in recent years in our research, and we are interested to see how appeal evolves as part of our annual research study into this market – the UK Institutional Market Study (UKIMS), launching in late November.

If you are interested in finding out more about the institutional research we conduct at Research in Finance, please don’t hesitate to contact Richard Ley ([email protected]) or Mick Hrabe ([email protected]). If you are a consultant, professional trustee or scheme, you can join our panel and take part in our research to help shape the industry here.

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