Investors are increasing their allocations into alternative investments, as inflation fears continue to grow. A Russell Investments survey finds that 70 per cent of fixed income managers now expect inflation to exceed 2 per cent for the next 12 months. Three months ago, only 38 per cent of managers expressed that view.
Amid an array of buoyant economic data from the US, the Fed’s timeline for raising interest rates has moved up, with the first hikes now expected in 2023, rather than in 2024 as previously anticipated.
However, the US central bank has been accused of mixed messaging over plans to curb inflation. Fed chair Jerome Powell said before a House of Representatives panel this week: “We will not raise interest rates pre-emptively because we fear the possible onset of inflation.”
Inflation expectations are contributing to a “paradigm shift” in investing, with Swiss asset manager Syz Capital noting a rise in investors’ allocations toward private markets and hedge funds. At the same time, traditional assets are losing favour, with fund managers’ bond allocations sitting at a three-year low.
Meanwhile, institutional investors are growing increasingly concerned over their ESG obligations. Pressure from institutional investors is pushing asset managers to explore ‘greener’ opportunities, as four out of five asset managers now incorporate climate-risk into their investment decisions.
UK pension schemes also face the onset of mandatory climate risk reporting from October onwards, although many say they do not yet understand the new rules.
Investment consultants are expected to pick up the slack, with almost three quarters of trustees relying on consultants for their schemes’ adherence to ESG rules.
“Trustees need to be mindful that the buck stops with them if things don’t go to plan,” warned the study’s authors, the Pensions Management Institute and BMO Global Asset Management.
Madeleine Taylor
Editor, Institutional Asset Manaer
maddy.taylor@globalfundmedia.com