Fear and opportunity shape investor attitudes

An industry survey has revealed both the concerns and investment plans of fund managers, asset consultants and institutional investors over the coming the year, showing that despite fears about the credit crisis Australian investors are looking offshore for opportunities.

According to the Asset Allocation Summit Australia industry survey, more than half of institutional investor respondents pointed to uncertainty over the full extent of the credit crisis as having the greatest impact on their performance. Also of significant concern to institutional investors are inflation, volatility, recession and liquidity issues.

Asset consultants, however, believe that inflation will have the greatest impact on returns for investors, with 70 per cent naming this as their key concern. The global credit crisis, volatility and liquidity issues are also of concern to asset consultants, as are the resource demands of China and India.

The fund managers surveyed joined their institutional counterparts in their concern over the global credit crisis; 40.6 per cent said this would have the greatest impact on returns. The second most concerning issue for fund managers is liquidity, with concerns about recession, volatility and inflation following.

In the coming 12 to 18 months, 50 per cent of institutional investors are looking to invest in the BRIC (Brazil, Russia, India, and China) economies, while 43.8 per cent are looking to invest in infrastructure assets.

Distressed debt will also be a popular institutional investment (29.2 per cent), as will pre-emerging markets, agriculture and energy.

Green investments will not be popular among institutional investors, with only 16.7 per cent looking to invest in the sector.

Asset consultants are also bullish on BRICs (71.4 per cent), but unlike institutional investors, asset consultants are bullish on energy resources, with 47.6 per cent recommending the sector to their clients.

Asset consultants have a similar view to institutional investors on infrastructure assets (42.9 per cent) and are also looking to distressed debt for opportunities. In the coming 18 months asset consultants will favour pre-emerging markets (28.6) to frontier investments and green investments (both 19 per cent).

Fund managers are also bullish on BRICs (48.6 per cent), infrastructure assets (43.8), and energy (40 per cent), and are also looking at distressed debt and agriculture. Fund managers are the most bullish on green investments with 27.6 per cent identifying opportunities in this sector, but fund managers did not identify pre-emerging markets and frontier markets as attractive.

In the next 12-18 months, institutional investors indicated they would decrease their allocation to Australian shares, while increasing their allocation to international shares. They also indicated they would decrease their allocation to listed property, favouring direct property instead.

Alternative investments will attract more institutional investment in the coming 18 months, as will infrastructure and private equity. Both Australian and international fixed interest will be out of favour, as will indexed bonds. Cash and exchange-traded funds will see increasing investment from institutional players.

Asset consultants held a fairly similar view to institutional investors on all asset classes, but will instead decrease their allocation to direct property and increase their allocation to indexed bonds.