WEF/Mercer survey reveals transformational investments by asset owners associated with systemic trends.
Sustainable agriculture took the third place among trend-linked investments under use and consideration by asset owners, a survey has found.
The theme follows after affordable housing and sustainable private equity, with 29% of asset owners investing in it and 32% considering to do so.
A total of 30 asset owners representing US$3.4 trillion in assets were surveyed, including also more than 160 interviews with members of the investment community over the past two years.
The result was featured in a released white paper titled ‘Trendsetters: Transformational Investment Practices of Advanced Investors’, produced jointly by the World Economic Forum and Mercer. It follows a previous report about how to convert global systemic risks into sustainable returns.
The report summarises the actions taken by asset owners to integrate today’s most challenging global systemic trends, such as climate change, low long-term interest rates and geopolitics, into their investment and risk management processes.
It provides asset owners with ways to better address the global systemic trends and pursue higher risk-adjusted returns, the report said.
One of the key findings of the report is that advanced asset owners, who do not find investment products in the market addressing these trends, often innovate and explore new investment approaches which then become mainstream.
Awareness of demand for solutions linked to these trends provides insight into potential capital flows, and can assist asset managers to commit the resources necessary to launch additional relevant strategies, the report said.
Due to the low and negative interest-rate environment, many asset owners are willing to explore more complex investment approaches to increase returns, such as private and emerging market debt and leverage facilities, it continued.
Investors also use gold and other alternatives for value storage, such as cryptocurrencies.
The report also cites the example of a Canadian pension fund which has examined interest rate and climate change inter-relationships and now invests in low-carbon infrastructure and green bonds that replace traditional fixed income instruments.
Other key takeaways relate to how asset owners adapt decision-making to capture global systemic trends; what differentiates an asset owner’s level of advancement in addressing the trends; how asset owners engage with stakeholders to effect regulatory, policy and company-specific change; and how asset owners use data and tools to improve investment decision-making.
Chow Kiat Lim, Chief Executive Officer at Singapore sovereign wealth fund GIC, said: “The breadth and depth of perspective, the extent of integration of global trends into investment processes, and the solutions and engagement plans that have been put in place make one thing clear: the global investment community is moving forward on these trends.”