Institutional Investing Trends Observed at Midyear 2022
The Natixis Investment Managers Solutions team monitors asset classes, investment products and market action, both in real time and from a historical perspective. At midyear 2022, see which institutional investing trends impacted asset allocation decisions.
1. (Almost) No Place to Hide
Stock/bond correlations spiked in 1H 2022. Three out of the first six months of the year constituted a “diversification failure,” which we define as an S&P 500 return of less than -4%, and a Bloomberg Aggregate return of less than -1.5%, a combination that has occurred in only two other months since 1988. With equity and fixed income both down, alternatives categories were top performers.
S&P vs. Barclays Agg (1988-2022)
(Almost) No Place to Hide, Continued...
Source: Natixis Investment Managers Solutions, FactSet, eVestment
By plan type, Taft-Hartley portfolios had the highest median return for Q1 2022 at -4%, while the lowest returning cohort was corporate defined benefit plans at -7.3%. With equity and fixed income returns down similarly in magnitude, portfolios with higher allocations to alternatives enjoyed relative outperformance.
Q1 2022 Performance by Percentile
Source: InvMetrics
There are now over 1,100 global privately held startup companies valued at $1 billion or higher, commonly (and now somewhat ironically) referred to as “unicorns.” The total cohort, represented by industries like fintech, internet software, e-commerce, and artificial intelligence, comprises $3.9 trillion in aggregate valuation. In stark contrast to the recent environment for public equity valuations, more than 200 of these companies achieved unicorn status over the past six months.
Unicorns $ by Industry | Unicorn Status by Year
Sources: Natixis Investment Managers Solutions, CB Insights; https://www.cbinsights.com/research-unicorn-companies
The spike in corporate bond yields saw discount rates for corporate pension clients increase from 2.96% (at 12/31/21) to 4.67% (at 6/30/22), a 26.5% decrease in liability values. The funded status of the 100 largest US corporate defined benefit plans rose to 107.0%, the highest level since October 2007. US corporations took advantage of the environment, with $5.4 billion in Q1 2022 pension risk transfer sales representing the highest first quarter ever recorded.1
Citigroup Above Median Yield Curve
Source: FTSE
Milliman 100 Pension Funding Index (12/31/99-6/30/22)
Source: Bloomberg
Institutional investors continue to see slight fee reductions across active US and non-US large-cap categories, while small-cap and fixed income results are more mixed.
Average Stated Fee (First Dollar)
Source: eVestment
Resource
Institutional Investing Trends at Midyear 2022
This midyear summary covers alternatives outshining disappointing equity and fixed income returns, increasing numbers of privately held startups, spiking corporate bond yields, and some modest fee reductions for institutional investors.
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