The end of 2019 – and into the start of 2020 – was characterised by strong appetite for risk assets, in an expansionary policy environment, with low interest rates and low inflation. The derailment of the global economy in the first half of 2020 was something for which most investors were unprepared for, but highlighted the need for robust asset allocation, and better governance. Asset allocation is one of the most important decisions as investor makes and it is often a long-term game. During times of market turmoil, we encourage clients to review their risks in light of their objectives to help them be best prepared for what lies ahead. Our latest paper European Asset allocation Insights 2020 provides a comprehensive overview of investment strategy across the European pension industry and identifies emerging trends in the behaviour of 927 institutional investors across 12 countries, reflecting total assets of over €1.1 trillion.
Diversification away from traditional risks
Investors continue to diversify into less traditional sources of return with an increase in growth fixed income, real assets and private equity allocations.
ESG: the new normal?
89% of investors now consider ESG related risks during the investment process, up from 55% in 2019.
Increased awareness on climate related investment risk
There was a dramatic increase in investors who have begun to consider the potential investment risk posed by climate change, from 14% of investors in 2019 to 54% in 2020.
Continuing move to delegating governance
Plans are increasingly using third parties across all stages of the investment cycle including strategy design, manager selection, ongoing monitoring and rebalancing decisions.
Broadening equity portfolios
Investors are seeking diversification within their equity portfolios by increasing allocation to emerging markets, small cap and low-volatility equities.
Deeper into the endgame for pension plans
66% of plans are now cash flow negative, and more than half (53%) of cash flow positive plans expect to become cash flow negative within five years.
The annual survey and report provides a comprehensive overview of investment strategy across the European pension industry and identifies emerging trends in the behaviour of 927 institutional investors across 12 countries, reflecting total assets of over €1.1 trillion. If you have any questions about the report, please contact your local Mercer representative or one of the contacts below.
Research Specialist, Co-author
European Director of Strategic Research