Singapore Investment Managers see growth in private asset classes due to collapse in risk premiums, remain optimistic about growth in 2022

The IMAS 2022 Investment Managers’ Outlook Survey found that asset managers expect global economic growth to normalize and remain robust

  • An increase in ESG investments, growth of millennials as investors and ageing savers increasing their allocation in investment products are expected to drive investment growth over the next three years
  • Inflation worries feature prominently; expect US Federal Reserve to react with two 25 basis point rate hikes in 2022
  • Concerns with China’s growth falling below 5% and further regulatory uncertainty

Singapore – 12 January 2022 – Demand for private assets is growing due to the collapse of risk premiums, according to the 2022 Investment Managers Outlook Survey, which represents the views of global buyside firms who manage over US$31 trillion dollars in assets. Fund managers are gearing up to offer new strategies in ESG, digital and private assets.

“Since the Global Financial Crisis, central bank liquidity has been ample and pushed down risk premia in most asset classes. The Covid policies rolled out in March 2020 further exacerbated the trend,” said Rajeev De Mello, Chairman of the IMAS Development Committee. “Equity risk premium has declined to low levels; government bond and corporate bond yields are still very low when taking into account inflation and expected credit risk. Private assets, such as private debt and private equity, still offer investors an illiquidity risk premium.”

Conducted by the Investment Management Association of Singapore (IMAS), the survey also found that regulation around environmental, social and governance investing principles (ESG) is driving adoption and that growth is expected to normalize in 2022 after the extraordinary growth bounce in 2021. Whilst survey respondents expect growth to remain robust, headwinds are expected which could challenge investor confidence. In addition, rising inflation globally could result in rate hikes.

The annual survey aims to better understand the biggest challenges and developments in the investment management industry, and the most prominent trends from the viewpoint of top investment professionals. It identifies key macroeconomics indicators, dominant investment strategies and growth drivers for fund managers in the year ahead. This year’s survey gathered respondents from 56 members who comprised mostly c-level executives of fund management firms based in Singapore.

Other major mid-term drivers of new business include the growth of millennials as investors and ageing savers increasing their share of savings in investment products.

“ESG continues to be an important driver of our business over the next three years. In the medium term, we expect ESG strategies to grow in popularity over many others,” said Susan Soh, Chairman of IMAS. “With soaring demand for ESG related investments, many of our members are developing business lines around sustainable finance or ESG products. Fifty-nine percent of the respondents are integrating ESG into existing strategies and more than half of them are looking into new launches of ESG and impact strategies for 2022. With intensifying regulatory scrutiny on such strategies’ ESG and Impact claims, asset managers must also ensure the rigour of their ESG process.”

Macroeconomic concerns

In terms of expected economic developments, 1 in 2 respondents believes that developed economies will succumb to high inflation. As such, 39% of the respondents expect US Federal Reserve to hike rates twice by 25 basis points in 2022, which is less than what the Federal Open Market Committee (FOMC) indicated in its latest Summary of Economic Projections.

“During the next few months, investors will focus on global Central Banks and their exit from the extraordinary policy support provided in the wake of the Covid crisis,” De Mello said. “Financial markets significantly benefited during the past 18 months and now face uncertainties as almost all countries increase interest rates. Our members expect the US Federal reserve to start its hiking cycle this year.”

Despite the US dollar’s strengthening in 2021, only 5% of the respondents expect the US Dollar to weaken by more than 5% versus the Singapore Dollar. Many of the respondents also expressed concern about China’s growth potentially falling below 5% and further regulatory uncertainty.

With the industry on a strong footing, there are still concerns about the small talent pool and increased demand for specialised skills. Twenty percent of respondents believe that one of the biggest threats to growth in the investment management industry is the shortage of required skills to support future industry growth. Twenty-one percent of respondents also feel that one of the key developments that would impact their business most is the building and retaining of talent pools.

Other key findings from the latest IMAS 2022 Investment Managers Outlook Survey include:

  • Three biggest threats: Significant market corrections across major asset classes (61%) is the biggest threat to the growth of the investment management industry in Singapore in the next 12 months. The next biggest threats are shortage of required skills to support future industry growth (59%) and further margin erosion (55%).
  • Fintech: A majority of respondents ranked ESG-related innovations that would improve the ESG datasets and tools as their top FinTech interest.

An infographic on the survey findings can be accessed here.

About the Investment Management Association of Singapore (IMAS)
The Investment Management Association of Singapore (IMAS) was founded on 22nd September 1997 by 10 major financial institutions in Singapore and has since grown to include more than 150 members. As a representative body of investment managers, IMAS spearheads the development of the industry in Singapore, by fostering high standards of professionalism amongst practitioners and creating public awareness of, and interest in the industry. We act as a forum for members, promote exemplary best practices, represent members collectively, educate investors, and improve standards of research and fund management expertise, as a collective drive to promote the investment management industry.

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Chi-an Chang
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