The 2024 CIO Sentiment Survey, a global collaboration between Top1000funds.com and CaseyQuirk, part of Deloitte Consulting, finds asset owners increasingly willing to make significant allocation shifts after several years of reticence. They have a greater appetite for risk and are increasingly experimenting with new asset classes, but they are concerned about high public equity valuations.
The 2024 CIO Sentiment Survey finds asset owners increasingly willing to make significant allocation shifts after several years of reticence. They have a greater appetite for risk and are increasingly experimenting with new asset classes, but they are concerned about high public equity valuations.
A year ago at the beginning of 2023, investors remained cautious, awaiting clearer market signals and keeping portfolios in a holding pattern. Now as businesses shift into gear for 2024, the freeze on major allocation decisions has finally begun to thaw.
The 2024 CIO Sentiment Survey, a collaboration between Top1000funds.com and Deloitte management consultancy CaseyQuirk, has found asset owners more confident about meeting their goals. Buoyed by a market rebound and clearer market signals on the trajectory of inflation, they are planning greater shifts in their investment portfolios after years of relative inertia.
Survey respondents were mostly CIOs in public and corporate pensions, but also included foundations, sovereign funds, endowments and insurers. Half were in North America, the other half spread across Europe, the Middle East, Africa and Asia-Pacific.
With the deep uncertainty of 2022 now in the rear-view mirror, asset owners are feeling more confident due to the performance of markets in 2023 and also the higher funded status of a lot of pensions, said Diane Cullen, senior consultant at Casey Quirk.
“They are taking risk off the table and adding fixed income, but a lot are coming out of 2023 thinking they will make more substantive asset allocation changes whereas before they were sticking to their knitting,” Cullen said.
However while confidence is gradually returning, new challenges have moved in to replace the old. Concerns about high equity valuations are keeping most asset owners from adding to their public exposures. Those most concerned about public equity valuations are drawing down from their active exposures into more passive positions.
New dynamics have also emerged in private markets. Asset owner demand for alternatives has cooled slightly, but remains above demand for other asset classes with particular interest in real assets and private credit.
Tyler Cloherty, managing director and leader of Deloitte Strategy and Analytics’ Knowledge Center, said CIOs were particularly wary about private equity after a tough environment for capital return and exits over 2023.
“A lot of asset owners are structurally over-allocated, and within the bucket of private markets they are thinking about how to adjust their allocations to other sub-asset classes,” Cloherty said, noting more interest in infrastructure and private credit but less in venture.
A changing rate environment as inflation subsides has also called for a long-awaited restructuring of fixed income portfolios. For now CIOs continue to add actively managed core fixed income and high yield investments as yields remain elevated, but geopolitical concerns are leading CIOs to reduce exposures to emerging market debt.
“Last year everyone just kind of stayed put, but a lot of plans are getting unstuck now,” Cloherty said. “Now that markets have–I won’t say normalised but gone back go a more regular pattern than we saw over the preceding 24 months–asset owners have higher confidence to make changes to their structural allocations.”
Smaller rosters, tighter collaboration
Respondents of last year’s survey painted a clear picture of stretched teams inadequately supported by necessary systems and tools, with understaffing and the talent shortage cited as top challenges.
Less so in 2024, with survey data suggesting staffing-related challenges remain, but the pinch has eased. As funds begin to resolve their talent shortage, they are conducting net hiring increases in risk management and compliance staff in a complex environment–particularly mid-sized and large funds.
There is also evidence asset owners are consolidating their manager rosters, seeking closer collaboration and a greater range of services and support from a smaller number of strategic partners. The trend towards greater internal management appears to have moderated, said Cloherty.
“Those who want to build that out have done it,” Cloherty said. “Obviously some are still moving in that direction [of internalising capabilities] but it’s not as big of a global shift as it was a couple of years ago.
“But in the manager environment, it’s incredibly competitive, there are so many managers out there selling similar things, so they are looking at what else they can provide beside their basic mandate.”
But while funds may be trending towards fewer managers, the alternatives universe is an exception to this trend, with asset owners looking to build new manager relationships as they increase their allocations to new, complex asset classes. Almost half of respondents were looking to build relationships with new alternatives managers.
And interestingly, greater experimentation is taking place with new asset classes, especially in private markets and credit as funds seek out investments with lower correlation to broad market movements. Notably, there is growing interest in areas banks are seeking to exit, such as asset-based lending.
“As they are looking at private credit, a lot of the asset owners are also looking not just at direct lending or plain vanilla-type private credit,” said Cullen. “We are seeing the greatest innovation from managers and demand from CIOs in new types of exposures. They are looking at impact lending, asset-based lending, royalties or specialty finance.”
This is particularly evident in larger funds with the scale to cut their alternatives bucket into a greater number of sub-classes, Cloherty said.
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