Pension funds and other institutional investors closely focused on protecting their portfolios and seeking out sources of potential return in Q2 2022, despite ongoing volatility, as both bond and equity markets plummeted.

•  Hedge funds and liquid alts strategies continued to provide investors with a significant source of portfolio diversification and returns in Q2 despite public market turbulence 
   
• Defensive positioning has become a top priority for many investors with the bfinance Risk Aversion Index moving deeper into bearish, risk-off territory, rising to 0.82 from 0.79 during Q2
   
• Multi-asset manager equity exposure has dropped to less than 32% (three percentage points below the long-term average) while exposure to fixed income and other diversifiers has risen to 68%

Pension funds and other institutional investors closely focused on protecting their portfolios and seeking out sources of potential return in Q2 2022, despite ongoing volatility, as both bond and equity markets plummeted.

That's according to the latest quarterly Manager Intelligence and Market Trends report from bfinance which provides insights into how investors are adjusting their portfolios due to difficult market conditions driven by rising inflation and increasing interest rates.

Despite ongoing public market turbulence in the quarter, hedge funds and other liquid alternative strategies continued to provide investors with a significant source of portfolio diversification and returns. 

With investors prioritising inflation-resilient assets, the bfinance Risk Aversion Index – a proprietary measure used to calculate how risk seeking (nearer zero) or risk averse (nearer 1) the market consensus is  moved deeper into bearish, risk-off territory, rising to 0.82 from 0.79 during Q2. 

Among the multi-asset managers tracked for the index, equity exposure dropped to less than 32% (three percentage points below the long-term average), and exposure to fixed income and other diversifiers rose to 68%.

Equity searches fell in Q2 as investors grappled with ongoing market volatility, encouraging them to take a global view and consider defensive style strategies, such as quality. It came as investors sought out growth, value and benchmark-aware opportunities.

The current market conditions have driven considerable interest in private markets, which represented 68% of all new search activity for the 12 months to 30 June 2022, up 13 percentage points year over year. Investors also demonstrated a keen appetite for real estate, which attracted 31% of all new searches, and private debt, which also drew attention as investors sought out new sources of portfolio diversification, income and inflation protection.

Key Implication | Managers: As external market pressures increase and equity markets fall, investors have developed a sharper focus on defensive opportunities including hedge funds, private markets and real estate.