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A new analysis reveals a "significant trend" among large institutional investors toward less hazardous products and markets.
State Street and the International Forum of Sovereign Wealth Funds, a worldwide network of sovereign wealth funds from 40 nations, based their results on State Street's Behavioural Risk Scorecard, which quantifies institutional investors' risk appetite across several asset classes.
In February 2022, the scoreboard dipped below zero for the first time in two years.
Capital flow decisions grew more broad-based in 2021, according to the research, and risk-averse behaviour was observed across investors' equities, fixed income, foreign currency, and asset allocation selections.
Additionally, the survey found significant capital outflows from developing economies in fixed income, the highest level in five years, as a result of increased geopolitical risk.
These withdrawals have been offset by steady inflows into developed market government bonds, notwithstanding inflationary pressures.
Neill Clark, head of State Street Associates, Europe, Middle East and Africa, explained: “As economies around the world emerged from the long shadow cast by the Covid-19 pandemic, investors are faced with new risks. Today, risk assets are re-pricing due to international conflict, inflation, and central bank policy responses.“
Following a period of opportunistic rebalancing and selective risk-taking during 2020, the past year has seen institutional investors moving towards safer assets and markets.”
He added: “Their asset allocation decisions suggest they are no longer adding to their equity exposure – which they had been doing since Q1 2020 – and instead, are adding to their fixed income and cash balances.”
The paper, titled Post-Pandemic Shift: Evidence from Institutional Investor and Sovereign Wealth Fund Activity, examined the behaviour of long-term institutional investors who represent more than $43 trillion in assets under custody and administration at State Street.
By fLEXI tEAM