AMP: Equities run sees investors turn to alternatives

Asset manager says global investors foresee stumbling blocks in economic recovery and are hedging their bets with alternative investments like property.

Investors worldwide are increasing their allocations to alternative investments like property to compensate for faltering performance in the equities markets, according to research from Sydney-based fund manager AMP Capital. The shift in emphasis comes after investors enjoyed strong returns from equities in 2013.

In AMP Capital’s latest Institutional Investor Report, more than a third of respondents anticipated increasing their allocation to direct real estate this coming year. In addition, 45 percent expected to increase their allocations to private equity while 24 percent expected to increase investment in direct infrastructure.

The emphasis on alternatives may seem odd given the bullish equity markets last year, the study noted. However, AMP’s survey found that investors did not expect the positive market sentiment to continue, and have in fact decreased their return forecasts for next year in the face of global market uncertainties.

Of AMP’s 58 institutional investor respondents, which collectively manage $2.4 trillion globally, approximately 93 percent either met or exceeded their return expectations in 2013. Portfolios returned 13 percent on average last year, but in the face of global economic and political uncertainties, investors have downgraded their return expectations to 7.3 percent on average for the rest of 2014.

“Institutional investors enjoyed a stellar year in 2013 largely due to the bull market in equities around the world,” said AMP Capital international chief executive and head of global clients Anthony Fasso. However, “looking ahead, investors have uncertain expectations.”

“Their concerns are based around the risks they see to the global economy including the ongoing crisis in Ukraine, the end of quantitative easing by central banks and questions over the future direction of China’s economy,” he explained. Consequently, “investors’ planned allocation increases for the rest of 2014 are most pronounced in alternative assets especially in private equity and direct real estate and infrastructure.”

Direct real estate investment was most popular among investors based in Europe and the Middle East, where 59 percent of respondents said they intended to increase their allocation to the asset class. In Asia, 28 percent of respondents said the same, while only 22 percent favored direct real estate increases in the Americas. By the same token, 31 percent of investors intend to move out of domestic equities, 26 percent are decreasing their allocation to cash and 21 percent said they would reduce the domestic fixed income portion of their portfolio.