Alternative debt has emerged as the likely outperforming asset class over the next year with private equity a surprise second pick in the 10th annual fund manager survey by Australian consulting firm, Frontier Advisors.
The Frontier poll, which pits the views of fund managers against in-house consultants, found private assets atop, bucking the historical preference for global equities (oscillating between developed and emerging markets).
“… this year there is a strong preference for alternative debt (33%) to deliver the strongest results, with private equity (17%) also coming in ahead of developed and emerging markets (13% each),” the survey says.
“The increasing number of managers nominating private equity as the sector most likely to produce outperformance has been climbing each year for the last half of our study. In the first four years of our study not a single fund manager had flagged private equity as their nominated top performer.”
Frontier staff also named listed alternative debt as the most likely to outperform in the year ahead, garnering a quarter of the in-house vote followed by the firm’s “perennial favourite” of unlisted infrastructure at 22 per cent.
“This [unlisted infrastructure] figure has been as high as 44% in previous years,” the Frontier report says. “Like managers, more of us (8%) are now predicting private equity as the most likely sector to deliver outperformance in the year ahead than ever before.”
The study also found almost two-thirds of fund managers rated looming recession as the biggest worry for their clients followed by inflation (48 per cent) and geopolitical tensions.
“Frontierians agreed that recession (56%) and inflation (50%) were key concerns, with similar levels being nominated, however the number one cited concern of investors, in the opinion of our team, was valuations of private market assets with 61% nominating this issue as opposed to 38% of managers,” the report says.
Furthermore, the two-sided survey reveals divergent views between managers and consultants on the fee question.
According to the report, about 83 per cent “of managers feel returns are being compromised in the quest to contain costs” in a metric that has risen every year since the 70 per cent result recorded in the 2015 survey.
“Conversely, and again unsurprisingly, Frontier had a different view on fees with exactly half of our team feeling that funds have too strong a focus on fees over returns – substantially less than fund managers,” the study says.
The Australia-centric survey also focuses on how the rapidly changing superannuation market across the Tasman is impacting fund management businesses.
Wayne Sullivan, Frontier marketing and business development director, said in a release: “Since we started our survey the number of superannuation funds has halved and the funds under management has almost doubled. While there are some areas that have remained steady over time, there are two primary factors that appear to have shifted sentiment of asset managers, and to a lesser extent consultants, when it comes to superannuation investors in particular. Perhaps unsurprisingly, those factors are consolidation and internalisation.”
Excluding the self-managed sector, Australia housed 268 super funds in 2014 compared to the current 134, the report says.
Frontier, which was spun out as an independent consulting firm from the industry fund sector, has also seen its client base change from about a three-quarters weight to superannuation funds in 2014 to just 40 per cent now.
The business has established a foothold in NZ, too, after picking up the $1 billion Tauranga-based charitable fund, TECT, in 2021 and making the short-list in other tenders.