Two key themes emerge from the data: a sharp jump in the number of asset owners citing both hot equity valuations and inflation as key risks ahead. In marked contrast to last year, over a quarter of 2022 respondents (29 per cent) named inflation as their key risk, indicative of how rising prices have taken a much firmer hold of economies than the temporary, post-COVID spike, predicted by many central banks. It has led to a correspondingly higher number of respondents than last year highlighting the risk of rate hikes, which alongside toppy equity valuations and inflation, make investors’ top three portfolio risks in 2022.

Alongside de-risking and reducing their equity allocations, asset owners are investing more in private markets to try and mitigate inflation. Infrastructure, private debt and real estate are the top three asset classes investors currently seek for yield, diversification and inflation protection. For those paring down equity, adding core, emerging market and unconstrained fixed income as well as favouring active mandates, especially in long only allocations, is a trend.

In another key theme of 2022, CIO respondents say they are under more pressure, particularly from external stakeholders, than in previous years. The public nature and volume of many scheme participants and partners adds most pressure for larger plans where respondents also report a notable spike in board member scrutiny. For smaller plans, under-resourcing is a significant challenge, particularly against the backdrop of ambitious plan objectives.

Rising investment risk is driving another clear trend. In a continuation of recent years, asset owners emphatically state their push and ambition to integrate technology and digitisation tools. Indeed, respondents cite the lack of systems and tools as a key challenge impacting the success of their investment teams. Big funds are leading the way in next step technological integration like Japan’s GPIF and Canada’s AIMCo, now seeking technology to support analytics and investment decisions.

ESG and climate risk remains a key focus with investor strategies evolving from broad integration to dedicated sustainable and impact strategies shaped around the SDGs: ESG is now an integral part of the investment process for nearly half of CIO Sentiment Survey respondents.

Still, 20 per cent of 2022 respondents said they had no plans to integrate ESG now - or before 2025. An important factor to watch going forward will be the extent to which war in Ukraine accelerates, or stalls, the green transition.

In another trend, most asset owners reported a reduction in investment costs, reversing the trajectory of steadily rising fees over the last three years. Responses revealed that traditional longonly strategies have seen the most discounting - and continued asset owner demand for a performance-based fee with a smaller management fee. The focus will now be on the extent to which lower fees can withstand headwinds as investors’ push into private markets and longer-dated capital allocation.

Manager selection: Incumbents rule

The 2022 survey also revealed important insight into asset owners’ manager selection processes. Most CIOs reported they rely on existing relationships with their current providers and consultants to source new managers, with less than a quarter of respondents making direct enquires to new managers themselves.

Asset owners most value broad portfolio advice from their asset managers, closely followed by thought leadership and capital market assumptions. They seek customised products and services delivered via dedicated relationship management. Survey respondents say they plan to either keep their number of managers the same or moderately increase their manager cohort, and despite international travel opening, hybrid contact split between a mixture of in-person and online remains the contact of choice in an enduring legacy of the pandemic.

In revealing responses, investors also cited their greatest pressures. Last year, and in a key consequence of the pandemic, responses revealed employee personal time constraints and asset owners’ struggle to achieve ambitious objectives. This year, responses cite the public nature and volume of stakeholders as a key source of external pressure for larger plans, while 40 per cent of respondents cited understaffed internal team as a key pressure alongside the lack of necessary systems. Other pressures included “aggressive” or too ambitious plan objectives and effectively incorporating sustainability goals.

In conclusion, after a year of robust returns, equity strength and risk on, asset owners are looking out on a changing landscape. Return targets remain challengingly high, high equity valuations are now a key risk and inflation has roared back into life. Investors are paring back on risk and hastening into defensive allocations and private markets all the while depending on their managers for insights and advice in a suddenly more complex world.