Investment flow roundup Q2 2022
Combined investment flows across the three main asset groups (namely equities, fixed income and alternatives) dropped by almost a third in the second quarter of 2022, compared with the first quarter as inflation took hold amid a backdrop of rising energy prices and global supply chain issues.
Despite the headwind facing investors, it was a lack of bond investment that drove the drop in asset flows during the quarter. Net fixed income inflows fell by almost 86 per cent quarter on quarter to just $10.8bn, largely as a result of a fall in the inflated North American figures recorded in the first quarter of the year.
Equity flows tracked almost 27 per cent higher in the second quarter compared with their Q1 2022 levels. APAC-based and European investors pulled back from the asset class, but investors in IMEA and North America increased their allocations, leading to an overall rise in inflows, to a net $15.2bn from Q1’s $12bn.
Net alternative flows rose by more than a third quarter on quarter, having remained stable through the end of 2021 and the beginning of 2022. An uptick in private market investments across the APAC and European regions in particular helped lift inflows to a net $64.9bn in Q2, up from $48.2bn in Q1.
Equity focus
Asset owners in IMEA accounted for the largest portion of the net equity inflows tracked in the second quarter of 2022, followed closely by those in APAC. The region’s investors allocated a net $6.2bn into equity strategies during the quarter, up from $0.4bn in Q1. More than two thirds of the net equity flows tracked were directed to emerging market stocks.
While investors across the other three regions surveyed by MandateWire remained bearish on emerging markets following Russia’s invasion of Ukraine, IMEA investors allocated a net $4.1bn of the total net $4.2bn tracked for the asset class in Q2. This was up on the net $40mn investors in the region allocated in the first quarter.
The inflows came almost entirely from two UAE-based funds: ADQ and the International Holding Company, which allocated $1.9bn and $2bn to Egyptian and Indian equities, respectively.
Investment in equities among APAC investors eased in the second quarter. Those surveyed invested a net $6.2bn into the asset class, down around 36 per cent on the $9.6bn allocated in Q1.
Of that $6.2bn, a net $5.7bn was directed towards developed market equities, making the region the largest contributor to developed market stocks of the regions surveyed.
Socially responsible equity solutions lifted inflows, with the Bureau of Labor Funds in Taiwan announcing in June that it had awarded five mandates totalling $2.3bn for global climate change equities.
Environmental, social and governance - themed allocations also helped sustain European investor interest in equities in Q2.
Overall net equity flows from the region dropped by 63 per cent to $1.8bn from $4.9bn quarter on quarter. Of the flows tracked, around 42 per cent had an ESG focus, with Finland’s €59bn ($61.7bn) Varma being responsible for the largest allocation made in the quarter.
After recording a net outflow of $2.9bn in the first quarter of 2022, North American investors made a muted return to equities in the second quarter, allocating a net $1.1bn.
In terms of sub-asset classes, global and international (ex-domestic) equities saw the greatest demand from North American asset owners, capturing $387.3mn of net inflows in Q2, up from $44.2mn in the previous quarter.
Fixed income focus
Net fixed income flows of $10.8bn were far below the $75.2bn tracked in Q1 2022. The fall can be attributed largely to a pull-back from North American investors, who allocated less to both conventional and non-conventional debt instruments in the quarter.
Investors across Europe and APAC also invested less than they had done in the previous quarter, while only asset owners in IMEA increased their exposures quarter on quarter.
There was a notable preference for the relative safety of more traditional bond instruments in the quarter, against a backdrop of risk asset price volatility driven by inflation.
North American funds allocated just $1.5bn to fixed income instruments in Q2, compared with the $66.4bn that flowed into the asset class in Q1.
High-yield bonds recorded net outflows of $1.4bn, government bonds clocked -$101.4mn and Treasury inflation-protected securities saw net outflows of $25mn. Conversely, credit saw net inflows of $409mn during the quarter, the highest of any fixed income category
European asset owners accounted for the largest portion of the fixed income investments made in the quarter, allocating $3.9bn. This was a minor, 4.9 per cent, fall on the $4.2bn allocated in Q1.
Investors favoured non-conventional debt allocations – particularly private debt and mortgages – over more traditional fixed income instruments, because, as Jason Fletcher, chief investment officer at the London CIV, commented at the Pensions and Lifetime Savings Association’s investment conference in May: “Investing in gilts at 2 per cent isn’t going to help anyone.”
APAC investors also pulled back from fixed income quarter on quarter. Net inflows dropped almost 22 per cent, to $2.9bn in Q2 from $3.7bn in Q1 2022. Domestic bonds continued to lead net inflows across the region in Q2 thanks to Chinese insurers
Meanwhile, asset owners in Japan and South Korea looked to global and international issuance, leading to combined net flows of $574.8mn.
Unlike other regions, investment in fixed income among IMEA investors more than doubled quarter on quarter. Net inflows clocked in at $2.5bn up from $0.9bn in Q1. Inflows were fairly evenly balanced between domestic and global allocations, while loans dominated non-conventional fixed income activity among the IMEA asset owners surveyed in Q2.
Alternatives focus
The North American asset owners surveyed in Q2 allocated more assets to alternatives than any other region in Q2 according to MandateWire data.
The $30.8bn invested by the region’s asset owners accounted for almost half of the total net $64.9bn invested in alternatives in the quarter. Investment was up almost 8 per cent on the net $28.6bn allocated to alternatives by North American asset owners in the first quarter of the year.
Private equity and sub strategies, including venture capital and buyouts, were the most popular alternative asset classes among the North American asset owners surveyed, recording net inflows of $13.2bn.
Private equity was in fact the most popular alternative asset class across all the regions surveyed by MandateWire in Q2, despite ongoing concerns that prospects may be shrinking for the private equity space (not least because of a global drop-off in exits and fundraising activity in Q1).
In APAC, investors allocated a net $13.5bn to alternatives in Q2, up from a net $7.8bn in Q1. Around 56 per cent of that inflow was directed towards private equity strategies.
Sovereign wealth funds in the region in particular looked to the asset class in order to gain exposure to new growth themes in the financial technology and consumer sectors, among others.
In Europe, where net inflows into alternatives almost doubled to $13.5bn in Q2 from $6.8bn in Q1, private equity saw net inflows of $3.1bn. The asset class was less dominant as a proportion of overall net inflows than in either North America and APAC, as the European asset owners surveyed split assets more evenly between private equity and other private market strategies, including infrastructure and private debt, as well as property.
In the IMEA region, much of the alternative inflow tracked went to unspecified alternative strategies. However, 9 per cent of the net $11.5bn that went into alternatives in Q2 was identified as PE money.
That $11.5bn net inflow was more than double the $5bn net inflow tracked in the first quarter of 2022.
