Investors have upped the number of searches for new asset managers, especially in private markets, but fundraising is slowing and such strategies look set to take a hit in the coming months, according to new global research.
Private market strategies are increasingly dominating searches despite expectations of a coming “capitulation” in valuations amid the Covid-19-driven dowturn, found Bfinance’s quarterly report, issued yesterday (May 7). Emerging market and global equity strategies, meanwhile, have suffered a decline in demand, the investment consultancy said.
The first quarter of 2020 saw 17% more searches conducted by Bfinance clients than in the same period last year, and private markets accounted for 52% of the total. This continued the previous momentum: such strategies made up 43% of the total in the 12 months to March 31. The Asia Pacific figures were similar to the global ones (see figure 1).
“Private market strategies are a logical beneficiary of current conditions, given the historically outstanding results of post-crisis vintages,” the report said. A contributory factor here is that the date of commitment to such funds does not determine the date when the money is actually deployed.
Private market valuations, however, have not yet undergone substantial writedowns, providing initial resilience versus the shocks seen in public markets, said the paper. Yet ultimately these asset classes “can’t escape” GDP or inflation shocks.
“It is likely that the 2017, 2018 and 2019 vintages for certain private market strategies will be poor, as they were for 2004-2007,” the report added.
Meanwhile, Covid-19 is having a substantial negative impact on private market fundraising, with managers indicating reduced or extended capital-raising plans.
For the first quarter of 2020, $204 billion of capital was raised, the lowest level since the third quarter of 2016 and well below the average quarterly close of $250 billion over the past three years, according to data provider Preqin.
And market participants expect activity to slow further, particularly for new funds and new managers, in light of the constraints imposed on meeting by Covid-19.
As for public equity markets, Bfinance’s research shows that demand for global and emerging market strategies fell year-on-year (see figure 2). EM and global equity accounted for 24% and 29% of new manager searches in the 12 months to March 31, 2020, compared to 35% and 40% the year before.
Yet while overall emerging market interest has declined, investors are showing interest in standalone China portfolios, the report said.
Meanwhile, the increased search demand for listed infrastructure and real estate investment trusts reflects “investors building diversified exposure to real assets using public as well as private markets”.
There has also been a rise in appetite for regional versus global equity searches, particularly for European equities.
On the fixed income side, the past year has seen new searches “leaning strongly” towards more conservative strategies – particularly investment grade credit. There has been less appetite for high yield, alternative credit and emerging market debt, said Bfinance.
“But we are working with various clients to help them identify strategies better suited to the new regime,” said the report, “with particularly strong interest in high yield, leveraged loans and structured credit.”