Almost forty per cent of UK institutional investors are optimistic about the economy as the country emerges from the pandemic, according to the latest Institutional Investor Compass Survey from MFS Investment Management.
The survey found that almost half of respondents (48 per cent) are confident about achieving their three- to-five-year goals but are less certain (24 per cent) of meeting their shorter-term objectives, post-pandemic.
Adding to this mixed sentiment, the survey showed that more than 57 per cent of institutional investors agree some industries will not recover, with more than 47 per cent agreeing that Coviod-19 has created investment opportunities and 35 per cent agreeing that markets do not fully reflect the long-term economic impact of the pandemic.
When questioned about their top concerns over the next 12 months, 68 per cent of UK institutional investors expressed their fear of a global recession and 52 per cent are worried about the potential formation of market asset bubbles. Unsurprisingly, 55 per cent highlighted high unemployment and 48 per cent growing government deficits.
“While there has been an overall recovery in spending as pent-up demand is realised in the UK, the global disruptions across industries, markets and regions stemming from the pandemic have left institutional investors uncertain about the future. This sentiment, against a fluctuating inflationary outlook, demonstrates that a renewed focus on long-term fundamental investing will be key to addressing uncertainty at both the industry and individual security level, post-pandemic,” says Elaine Alston, managing director, UK relationship management team at MFS.
“We believe that investment returns in the next decade will be markedly lower than they have been historically. Consequently, skilled active management and the alpha it can provide will play an important role in helping investors achieve the additional returns needed to meet their retirement goals,” she adds.
While pandemic disruptions have created uncertainty, 61 per cent of UK institutional investors believe their organisation coped well with the impact of the pandemic, yet many see the larger UK investment industry coming up short, as only 24 per cent agreed that the industry coped as well.
As the UK eases restrictions, institutional investors voiced their concern about the ongoing disruption to their day-to-day business activities due to the possibility of a prolonged, remote-service model. While most respondents do not anticipate significant issues, a majority indicate they expect some level of difficulty for a wide range of activities if the status-quo remains, particularly conducting due diligence on investment management firms (72 per cent) and getting timely responses to their inquiries (59 per cent).
Active managers have done a better job than passive managers of providing valuable communications and support during the pandemic. Rating the usefulness of pandemic-related support, 56 per cent of respondents said the information received from the active managers they work with in the UK was useful versus only 25 per cent for their passive managers.
The human impact of the pandemic has not been lost on institutional investors. Almost three-quarters expressed their concern for the health crisis brought on by the global pandemic. In addition to this, 27 per cent also rated the physical and mental health of staff post-pandemic as a potential challenge over next the 12 months, surpassing similar levels of concern around technology/cyber threats (11 per cent), geopolitical-driven volatility (11 per cent) and pandemic-related business disruptions (15 per cent).
“We are heartened to see concern for individual employees showing through among all respondents, here and in other markets, signaling a growing recognition that the well-being of investment and operational personnel supports long-term investment outcomes. Our hope is that this continues as all organisations, not just investment, can learn from the remote servicing experiences of the pandemic as they reconsider the way they engage employees and the industry in order to create value for investors,” Alston says.
The notion that institutional investors are putting a greater emphasis on the human element within their own organisations speaks to the growing impact of Environmental, Social and Governance (ESG) factors and sustainable business practices being brought to the forefront as a result of the pandemic. However, it remains to be seen if it will translate to investment action by those same organisations.
Consider, almost half of UK institutional investors agree that sustainability will be more important as a result of the pandemic going forward. In support of this, 41 per cent agree the pandemic will accelerate the adoption of ESG investments or strategies.
“We continue to see UK institutions engaging us more intensively on sustainability. While the pandemic has exposed significant gaps in the social contract, moving the needle on how to think about and incorporate the consideration of sustainable investing and the material impact of ESG factors into the day to day remains a challenge for many institutional investors emerging from the pandemic,” Alston says.
