Institutional investors maintain confidence in asset managers to navigate COVID-19 crisis 

New research from State Street shows the majority of institutional investors have faith in their asset managers’ ability to navigate the crisis.

By Joe Parsons

Institutional investors have retained high levels of confidence in their asset managers amid the COVID-19 crisis with over three-quarters commending their support during the challenging period, a survey by State Street has found. 

The research from the Boston-based global custodian of 250 investment professionals and pension funds found that that majority of institutional investors have faith in their asset managers’ ability to navigate the crisis, while a similar 74% of respondents rated the communication and support from their asset managers as either ‘strong’ or ‘very strong’.  

“In a more challenging operational environment, asset managers globally have continued to show their value to institutional investors by providing important insights and leveraging technology to communicate those views,” said John Lehner, global head of asset manager segment, State Street.  

“Though, there appears to be an opportunity for asset managers to provide more strategic views and forecasts through technology, such as podcasts, webinars, video conference calls and online presentations.” 

The pandemic has also created major challenges for back-office functions, which the survey showed that 37% of institutional investors found securities valuations ‘challenging’ or ‘extremely challenging’ during the crisis. This was followed by liquidity (34%), timely reporting (34%) and cash forecasting (30%). 

Despite market volatility, more than half of institutional investors (52%) globally are looking to increase allocation to equities in the next three to six months as they hunt for value. This was followed by appetite to increase allocations to active investments (35%), private credit (35%) and cash/money market funds (31%). 

However, the majority of institutional investors around the world do not expect a rapid ‘V-shaped’ recovery from the crisis, with two-thirds (66%) not expecting economic activity to return to normal before 2021 or even later.  

There is also widespread doubt that government and central bank interventions to alleviate the crisis will lead to a faster recovery than after the global financial crisis in 2008, with 51% of respondents saying it is too early to tell and 15% anticipating a slower recovery. 

“The findings reaffirm the mismatch during this crisis between expected economic and equity market performance,” said Lehner. “While institutional investors are braced for a long economic recession and slow recovery, almost 41% expect equities to recover by the end of September 2020, increasing to 59% by the end of 2020.”