INVESTMENT managers are bracing for the prospect of a challenging year, as high fixed deposit rates could continue to keep investors on the sidelines.
The Investment Management Association of Singapore (Imas) investment managers outlook survey found a fairly sanguine outlook among fund managers, who mainly expect stable economic growth and positive investment returns for various Asian equity and credit indices.
Still, uncertainty in the business outlook could persist. According to most respondents, the three biggest threats to growth are that economic uncertainty keeps investors from investing their cash, higher deposit rates put pressure on asset flows, as well as margin erosion.
In addition to fixed deposits, Singapore Treasury bills have also been attracting substantial subscriptions.
The survey was conducted between November and December last year, with 79 respondents from 68 firms taking part. The firms collectively manage over US$35 trillion in assets.
Imas’ third-quarter report on Singapore fund flows shows a net inflow of S$263 million, mostly into fixed income and money market funds. Equity funds reflected a modest inflow of S$9 million, while others such as asset allocation and alternative funds experienced outflows.
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The fourth-quarter report is not yet available.
For 63 per cent of respondents, the further rise of alternative investments is expected to have the most impact on their business.
The top three strategies that are expected to grow in popularity are private debt, alternatives and income strategies. In the previous survey in 2022, private debt was not among the top three. Private debt is available only to accredited or sophisticated investors. It is seen as a viable alternative asset not just for diversification, but also for its yield benefit.
Most private debt is floating rate in structure. A resilient global economy would help to mitigate concerns about credit quality and defaults.
According to Preqin, the private debt sector raised US$193 billion as at the end of 2023, compared to US$218 billion in 2022. The prospects for fundraising in 2024 are expected to be bright.
In Imas’ survey, environmental, social and governance (ESG) strategies dropped in the pecking order of priorities – it is the third most important. In contrast, in 2022, it took pole position. Imas said that certain types of ESG strategies have underperformed and this has dampened demand, especially among retail investors.
Imas chairman Jenny Sofian said: “This survey acts as a pulse check on the industry amid significant changes. This year, we are seeing increasing demand for innovative products in alternatives and digital assets, overtaking ESG investments for pole position. This reflects an important shift in investor mindsets, led by the growth of millennial investors.”
To differentiate their offerings, survey respondents expect to incorporate new asset classes such as private assets and digital assets. They also expect to move into new client segments such as retail and high-net-worth investors.
Meanwhile, on the market outlook, respondents predict the US dollar will maintain its current exchange rates against the Singapore dollar. A significant 65 per cent expect the US Fed funds rate to be reduced.
Most respondents also expect market indices to stage a stronger performance in 2024. The JPMorgan Asian Credit Index would likely strengthen this year with a 50 to 100 basis point drop in yield. The MSC Asia ex-Japan and MSCI China indices are expected to rally by 10 to 20 per cent.
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