Significant market correction, underskilled talent and further margin erosion are the three biggest threats to the growth of Singapore’s investment management industry this year.
That is according to the 2022 Investment Managers Outlook Survey, released on Jan 12 by the Investment Management Association of Singapore (IMAS). Conducted in December 2021, the survey represents the views of 56 executives from global buy-side firms that manage over US$31 trillion dollars in assets.
Three-fifths of the respondents chose market correction across major asset classes (61%) and a shortage of required skills to support future industry growth (59%) as the biggest threats to investment management in 2022, while 55% feared further margin erosion in year three of Covid-19.
Meanwhile, demand for private assets is growing due to the collapse of risk premiums and asset managers expect global economic growth to normalise and remain robust.
"Since the Global Financial Crisis, central bank liquidity has been ample and pushed down risk premia in most asset classes. The Covid-19 policies rolled out in March 2020 further exacerbated the trend,” says Rajeev De Mello, chairman of the IMAS development committee.
“Equity risk premium has declined to low levels; government bond and corporate bond yields are still very low when taking into account inflation and expected credit risk. Private assets, such as private debt and private equity, still offer investors an illiquidity risk premium,” adds De Mello.
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That said, members are optimistic about growth in 2022. They expect growth to moderate from the extraordinary expansion in 2021 but remain at a stronger rate than trend growth.
Inflation has become a significant worry, says IMAS at a media briefing. Based on responses to the prior iterations of the survey, inflation has surprised members as well as most investors globally.
One in two respondents believes that developed economies will succumb to high inflation. As such, 39% of the respondents expect the US Federal Reserve to hike rates twice by 25 basis points in 2022, which is less than what the Federal Open Market Committee (FOMC) indicated in its latest Summary of Economic Projections.
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“During the next few months, investors will focus on global Central Banks and their exit from the extraordinary policy support provided in the wake of the Covid-19 crisis,” says De Mello. “Financial markets significantly benefited during the past 18 months and now face uncertainties as almost all countries increase interest rates. Our members expect the Fed to start its hiking cycle this year.”
Despite the US dollar’s strengthening in 2021, only 5% of the respondents expect the US dollar to weaken by more than 5% versus the Singapore dollar.
On the other hand, there is more uncertainty about China, with many members expecting China’s growth to fall below 5%, highlighting regulatory uncertainty as a key area of concern.
Close to three-fifths of respondents (59%) think that global economic growth will normalise but remain robust. Specifically, US GDP growth will come in above 4%, China above 5%, Europe above 3% and Japan above 2%.
New strategies in ESG
After a breathless year for sustainable investing, the hype surrounding environmental, social and governance investing principles (ESG) may cool down in the year ahead. Regulation around ESG is driving adoption, with growth expected to normalise in 2022 after the extraordinary growth bounce in 2021, according to IMAS.
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"ESG continues to be an important driver of our business over the next three years. In the medium term, we expect ESG strategies to grow in popularity over many others,” says Susan Soh, chairman of IMAS.
“With soaring demand for ESG related investments, many of our members are developing business lines around sustainable finance or ESG products. 59% of respondents are integrating ESG into existing strategies and more than half of them are looking into new launches of ESG and impact strategies for 2022,” she adds.
Other major mid-term drivers of investment growth include the rise of millennials as investors (46%) and ageing savers increasing their share of savings in investment products (32%).
On FinTech, IMAS’s members are “much less concerned” about disruption from technology companies than they were in prior years, with 60% believing it will provide only incremental improvements to both the investment process and operating leverage, mostly offsetting business headwinds but not creating material advantage.
IMAS was founded in September 1997 by 10 major financial institutions in Singapore and has since grown to include more than 150 members. As a representative body of investment managers, IMAS acts as a forum for members and aims to improve research standards and fund management expertise.
Photo: Bloomberg / Infographic: IMAS
