The volatility and disruption brought by the Covid-19 pandemic may cause more asset owners to consider offloading at least parts of their portfolios, according to new research from Cerulli Associates.
The research firm surveyed asset management professionals specializing in requests for proposals about what strategies investors were likely to target in the wake of the pandemic. Outsourced-CIO services were seen as one of the most likely beneficiaries, with 67 percent of surveyed professionals anticipating an increase in RFP volume for OCIO mandates.
Similarly, 72 percent predicted increased demand for multi-asset class products, while 56 percent expected to see more RFPs for liability-driven investment strategies, which have been popular with corporate plan sponsors as a way to manage pension risk. All three types of strategies give asset managers more discretion over asset allocation decisions.
“The demand for these services was increasing prior to the outbreak of Covid-19; however, it is no surprise that a challenging market environment has likely caused more institutions to consider solutions that offer asset allocation services,” Cerulli said in a report on the findings.
So far, however, RFP volume has been down across all products and strategies, as asset allocators and managers have navigated the first months of the pandemic. According to Cerulli’s survey, 63 percent of asset managers have experienced a decline in RFP volume in 2020 — and where there have been new mandates, the sales process has moved more slowly than usual.
“While institutional clients were checking in on the operations at their existing asset managers, they have been hesitant to move forward with new mandates,” Cerulli said.
Looking forward, RFP professionals predicted that fixed income funds would see the biggest increase in demand, with 79 percent of survey respondents anticipating higher RFP volume for U.S. fixed-income strategies over the next three years. Sixty-nine percent predicted increased demand for emerging markets debt, while 55 percent said the same about developed market fixed income outside of the U.S.
This is a big change from a year ago, when Cerulli’s survey found that only 33 percent of RFP professionals expected increased demand for U.S. fixed-income strategies. Back in 2019, most survey respondents were expecting higher volumes of RFPs for alternative investments like private equity and real estate.
Those expectations have fallen after the events of this year, with most RFP professionals now expecting the volume of private equity mandates to plateau over the next three years. On real estate, survey respondents were more divided, with 40 percent anticipating an increase in RFP volume and 40 percent expecting no change.