The 2022 annual CIO Sentiment Survey, a collaboration between Top1000funds.com and CaseyQuirk, part of Deloitte Consulting, finds asset owners most concerned about equity valuations and inflation. After three years of fee rises, asset owners are paying less for their investments with external fees coming down, while CIOs in 2022 are also working with a smaller manager roster than previous years.
After an extraordinary 2021, the risk of a painful downturn is high
A sharp jump in the number of asset owners citing both hot equity valuations and inflationas key risks ahead.
Asset allocators are de-risking and reducing their equity allocations and investing more inprivate markets to try and mitigate inflation
The annual 2022 Global CIO Sentiment Survey, a collaboration between Top1000funds.com and Casey Quirk, part of Deloitte Consulting, finds global CIOs notably concerned about elevated equity valuations and inflation. Touted as temporary by most policy makers last year, inflation now looks more engrained and is driving demand for defensive allocations to assets like infrastructure and realestate.
With insights from asset owners around the globe and gathered before Russia’s invasion of Ukraine unleashed market turmoil and a European energy crisis, the latest survey reflects the positive impact of last year’s risk-on, active strategies on the funded status of many pension fund respondents. Inflation and equity concerns notwithstanding, CIOs began 2022 feeling more confident about the health of their portfolios and their ability to meet returns than in any of the last three years. Still, 2022 responses also clearly flag a change in sentiment and hold a warning that after an extraordinary 2021, the risk of a painful downturn is high.
CIOs are feeling confident following multiple years of strong performance
Better funding status among plans has reduced pressure to add risk to close funding gaps
Confident in meeting target return
% "yes" response, % of respondents, 2020-2022
taking more risks to achieve return targets
% of respondents, 2018-2022
Two key themes emerge from the data: a sharp jump in the number of asset owners citing both hot equity valuations and inflation as key risks ahead. In marked contrast to last year, over a quarter of 2022 respondents (29 per cent) named inflation as their key risk, indicative of how rising prices have taken a much firmer hold of economies than the temporary, post-COVID spike, predicted by many central banks. It has led to a correspondingly higher number of respondents than last year highlighting the risk of rate hikes, which alongside toppy equity valuations and inflation, make investors’ top three portfolio risks in 2022.
Alongside de-risking and reducing their equity allocations, asset owners are investing more in private markets to try and mitigate inflation. Infrastructure, private debt and real estate are the top three asset classes investors currently seek for yield, diversification and inflation protection. For those paring down equity, adding core, emerging market and unconstrained fixed income as well as favouring active mandates, especially in long only allocations, is a trend.
In another key theme of 2022, CIO respondents say they are under more pressure, particularly from external stakeholders, than in previous years. The public nature and volume of many scheme participants and partners adds most pressure for larger plans where respondents also report a notable spike in board member scrutiny. For smaller plans, under-resourcing is a significant challenge, particularly against the backdrop of ambitious plan objectives.
Rising investment risk is driving another clear trend. In a continuation of recent years, asset owners emphatically state their push and ambition to integrate technology and digitisation tools. Indeed, respondents cite the lack of systems and tools as a key challenge impacting the success of their investment teams. Big funds are leading the way in next step technological integration like Japan’s GPIF and Canada’s AIMCo, now seeking technology to support analytics and investment decisions.
ESG and climate risk remains a key focus with investor strategies evolving from broad integration to dedicated sustainable and impact strategies shaped around the SDGs: ESG is now an integral part of the investment process for nearly half of CIO Sentiment Survey respondents.
Still, 20 per cent of 2022 respondents said they had no plans to integrate ESG now - or before 2025. An important factor to watch going forward will be the extent to which war in Ukraine accelerates, or stalls, the green transition.
In another trend, most asset owners reported a reduction in investment costs, reversing the trajectory of steadily rising fees over the last three years. Responses revealed that traditional longonly strategies have seen the most discounting - and continued asset owner demand for a performance-based fee with a smaller management fee. The focus will now be on the extent to which lower fees can withstand headwinds as investors’ push into private markets and longer-dated capital allocation.
The 2022 survey also revealed important insight into asset owners’ manager selection processes. Most CIOs reported they rely on existing relationships with their current providers and consultants to source new managers, with less than a quarter of respondents making direct enquires to new managers themselves.
Asset owners most value broad portfolio advice from their asset managers, closely followed by thought leadership and capital market assumptions. They seek customised products and services delivered via dedicated relationship management. Survey respondents say they plan to either keep their number of managers the same or moderately increase their manager cohort, and despite international travel opening, hybrid contact split between a mixture of in-person and online remains the contact of choice in an enduring legacy of the pandemic.
In revealing responses, investors also cited their greatest pressures. Last year, and in a key consequence of the pandemic, responses revealed employee personal time constraints and asset owners’ struggle to achieve ambitious objectives. This year, responses cite the public nature and volume of stakeholders as a key source of external pressure for larger plans, while 40 per cent of respondents cited understaffed internal team as a key pressure alongside the lack of necessary systems. Other pressures included “aggressive” or too ambitious plan objectives and effectively incorporating sustainability goals.
In conclusion, after a year of robust returns, equity strength and risk on, asset owners are looking out on a changing landscape. Return targets remain challengingly high, high equity valuations are now a key risk and inflation has roared back into life. Investors are paring back on risk and hastening into defensive allocations and private markets all the while depending on their managers for insights and advice in a suddenly more complex world.
The results of the CIO Sentiment Survey broken down into investment impact and themes
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Investors’ risk perception is informing their planned allocation shifts, most visible in a spike in the number of funds planning “significant increases” to active fixed income in North America and EMEA.
Elsewhere, CIOs continue to de-risk and reduce equity allocations while the majority of respondents said they planned to increase allocations to alternatives, increasingly tilted toward real assets and private debt. Respondents listed the main defensive allocations in their portfolios as core fixed income (61 per cent) and real assets (30 per cent) and said they are venturing into private markets for yield and diversification.
Investors are shifting allocations to add core, EM and unconstrained fixed income
Net Change* in Fixed income allocations YOY
% of respondents
CIOs continue to de-risk, reducing equity allocations
Net Change* in Fixed income allocations YOY
% of respondents
Delving further into the data, responses reveal demand for private assets tilted most towards infrastructure (67% of respondents said they planned increases here) followed by private debt and real estate, as well as private equity.
Looking ahead, investors indicated future demand for active and passive fixed income, shifting allocations to add core, emerging market and unconstrained fixed income. Of these strategies demand for passive fixed income and active emerging market debt shows the biggest spike in demand compared to last year. Within long-only mandates, CIOs are increasing active allocation compared to last year.
Within Long-Only mandates, CIos are increasing active allocation
% of respondents