New economic reality forces wealth investors re-evaluate their investment strategies - Schroders

Schroders said South African wealth investors, while a bit slower to do so, also planned to adjust their strategies.

Schroders said South African wealth investors, while a bit slower to do so, also planned to adjust their strategies.

Published Nov 29, 2023

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Global investment management firm Schroders has warned that wealth investors globally have been forced to re-evaluate their investment strategies in response to the new economic reality and ongoing inflation and geopolitical uncertainty.

This is according to the Schroders Global Investor Study (GIS) 2023, which surveyed more than 23 000 wealth investors who invest from 33 locations globally – including 400 South Africans between 26 May and 31 July 2023.

The flagship study has identified that almost 80% of investors now believe that we have entered a new era of policy and market behaviour as a result of higher inflation and interest rates.

Schroders’ group chief investment officer and co-head of investment, Johanna Kyrklund, said this was in stark contrast to last year’s study, when some respondents believed the market challenges to be a blip and predicted a quick return to the more benign, low inflation, low rates environment.

As a result, Kyrklund said more than half of global respondents had already adjusted their investment strategies and a third intend to do so.

Kyrklund said South African wealth investors, while a bit slower to do so, also planned to adjust their strategies.

She said that research showed that South African respondents who rated their investment knowledge as ‘expert’ were the quickest to react with 60% having already adapted their strategy, and showed a heightened interest in digital assets and cryptocurrency as compared to global respondents.

“In an investment landscape being increasingly shaped by the ‘3Ds’ of deglobalisation, decarbonisation and demographics, investors are still getting used to the fact that higher inflation and higher interest rates are here to stay,” Kyrklund said.

“Every asset has had to reprice to compete with a yield on cash in the bank. Valuation matters once again. Compared to the last 15 years, you may now need to be more flexible and active in the way you invest. The results of the study show that some investors are adjusting quicker than others.”

Schroders also noted that regulators and asset managers had been actively working on democratising private assets in recent years, notably with the launch of structures such as LTAFs in the UK or ELTIFs in Europe.

It said in South Africa, interest was also increasing, particularly following the amendments to Regulation 28 of the Pensions Fund Act, which now allowed local pension funds to invest up to 15% of their assets into private investments.

However, Schroders said almost 70% of South African respondents cited costs and expenses as the largest perceived barrier for the asset class; with transparency (63%) and experience with/knowledge of the asset class (61%) as runners up.

Nevertheless, almost 48% of South African respondents said they would consider allocating 6% - 20% of their portfolios to these assets.

Specifically, South African wealth investors are most attracted to real estate (75%) followed by both private equity and infrastructure and renewable energy (both 64%).

Interestingly, global respondents were almost 20% less likely to invest in real estate than South African respondents.

Schroders Capital’s chief investment officer Nils Rode said overall, respondents see private assets as an important way to boost portfolio performance with both global and South African respondents indicating this as the most attractive quality of investing in this asset class.

Rode said a few years ago, a typical private assets investor would have been what asset managers call “institutional”, but the picture was likely to change a lot in the next few years as this year’s GIS showed.

“The range of options to access private markets is widening, and smaller investors are taking note. It’s a challenging time to be interpreting markets, and investors are looking for every available tool to achieve their desired outcomes. Private assets represent an incredibly varied set of opportunities, and a huge number of return drivers,” Rode said.

“We believe the widening of options for smaller investors is a very positive development. We also believe that the case for including a private asset allocation – where appropriate - is arguably stronger than ever.”

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