A survey of institutional investors by Eaton Partners found that the majority are looking to increase their allocations to private capital market type asset classes in 2021, citing “pent-up demand” among investors but also a desire to seek out asset managers with strong track-records.
Institutional investors are going to be looking to take advantage of market dislocation which is expected to drive significant flows, but as well as this investors are looking for differentiated strategies, uncorrelated strategies and also emerging managers and asset classes could also do well in 2021 as a result.
Eaton Partners is part of the Stifel Financial Corp. group of companies and one of the largest capital placement agents and fund advisory firms. It polled limited partners of 61 top institutional investors for their views on allocations in 2021 between Nov 30th and Dec 10th 2020.
The survey found a majority looking to increase private capital market alternatives allocations, a bucket that insurance-linked securities (ILS) can also fit neatly into given its delivery of returns that aren’t linked to broader economic factors and the fact much of ILS is illiquid.
15% of the investors polled said they would be looking to allocate to strategies that are relatively uncorrelated in the first few months of 2021.
13% of the investors said they would significantly increase private market allocations in 2021, while 44% said they expect to modestly increase them and 43% said no change is currently anticipated.
“We anticipate a strong start to 2021 in fundraising as a result of pent-up demand by institutional investors,” explained Jeff Eaton, Partner at Eaton Partners. “The fundraising environment is going to be very competitive, where strong track record performance will be paramount. Our survey found that 72% of institutional investors consider the prior success of a manager the single most important factor when evaluating a new investment.”
“LPs will also be looking to capitalize on recent market dislocation, with survey respondents most interested in buyout (48%) and venture (40%) strategies,” added Peter Martenson, Partner. “We also expect investors will seek unique and differentiated fresh ideas as the year unfolds, undoubtedly creating opportunities for emerging mangers to capture market share. In fact, our survey found that an overwhelming majority (71%) of respondents say their interest in emerging and first-time fund managers is about the same, or even greater, than in 2020.”
This all bodes well for the ILS fund sector, as investors turn to unlisted and less correlated alternative asset classes in 2021.
Interestingly, Eaton Partners also polled the investors on their attitudes to making allocation decisions based only on virtual meetings with them, due to the pandemic.
“While investors have gotten comfortable making investments without physically meeting managers, 70% of survey respondents say virtual meetings are just a backstop until COVID-19 is behind us and travel opens up again. Only 20% consider virtual meetings a fine substitute for face-to-face interactions. As such, a gradual uptick is expected of high-value in-person meetings complemented by the continued use of virtual interactions as 2021 progresses,” Eaton Partners explained.