How Investors Are Responding to COVID-19

Though investors are revising their commitments to alternatives in 2020, most are not adjusting their longer-term plans

At least for the short term, investors are revising their commitments to alternatives following the market disruption caused by the COVID-19 pandemic. When we surveyed investors back at the end of 2019, the majority (83%) said they were planning new commitments to alternatives in the year ahead. Fast-forward to April 2020 and 59% of surveyed investors* now say that the number of commitments they plan to make to alternatives in 2020 has “slightly” or “significantly” decreased, with only 9% of investors planning to increase commitments.

Amid fears of a sharp global economic downturn, investors are also reducing the amount of capital they intend to commit to alternatives. Sixty percent of those surveyed plan to decrease the size of their planned commitments either “slightly” or “significantly.” Indeed, many investors are concerned by the potential effects of the virus on the returns of their alternatives portfolios over the long term: 53% believe the impact will be “moderately negative.”

While our survey results clearly indicate a strong sense of caution among the investment community right now, there is much to suggest that investors are planning for the longer term and continuing to invest – in different sectors, in some cases.

Which Sectors Are Investors Targeting or Avoiding in the Crisis?
The economic impact of the COVID-19 crisis has been far from balanced; the fallout has hit some industries far worse than others. As retail markets across the globe face a dramatic decline due to government lockdown measures, it’s no surprise that 34% of surveyed investors said they plan to avoid retail-focused real estate investment in 2020 as a direct result of COVID-19. And although almost half (47%) of investors said they were not avoiding any particular regions or sectors due to the crisis, this does highlight the extent to which retail real estate markets may struggle to recover when government restrictions are lifted.

For the logistics sector, though, which 15% of surveyed investors plan to target in 2020 as a result of the crisis, there is more hope. One investor said that the sector “should benefit from broader acceptance of online shopping.” For real estate as a whole, though, another investor felt that “people won’t have money to invest in real estate whereas healthcare sectors will be booming after normalcies return.”

Indeed, investors appear to be looking closely at healthcare-focused private equity for the rest of the year. All eyes are currently on healthcare systems across the entire world as they attempt to overcome the virus, and 36% of surveyed investors plan to target the sector in 2020 as a result of the pandemic.

Will There Be Any Long-Term Implications for Investors?
Although investors are exercising caution in the short term, many believe that COVID-19 will not have a lasting impact on their alternatives programs. Of the investors surveyed, 63% do not anticipate any long-term effect on their future alternative investment strategy, as shown in the chart above. In fact, 29% of investors aim to divert more capital toward alternatives in the long term.

What the pandemic may change in the long term, though, is the way investors approach certain practices. When asked whether travel restrictions and social distancing were affecting their ability to make new investments currently, 82% said these factors were having an impact because face-to-face meetings are either “fairly important” or even “essential” to decision-making. Will investors be able to embrace remote working as the new normal? The largest proportion appear to think so: one-third of respondents said that fund manager marketing documents/pitches make face-to-face meetings non-essential.

To view the full set of results from our April 2020 survey of alternatives investors, download the data pack.

For the results of our April 2020 survey of alternatives fund managers, read our previous article.

For more insights and analysis on the impact of the pandemic on alternative assets, take a look at our COVID-19 Knowledge Hub.

*In April 2020 we surveyed 110 investors operating across all alternative assets. Twenty percent of participating investors were family offices, the largest share. Asset managers made up 17% of respondents, while banks comprised 14%. Forty-three percent of investors were located in Europe, while 31% were based in North America and 22% in Asia.