Bearish approach predicted in Australian for purpose investment space

Australian not for profits are changing investment strategies moving forward, according to survey data released exclusively to Pro Bono News. 

The head of endowments and foundations for Mercer Pacific expects changes in fixed income and private market investments over the next three years in Australia and New Zealand, following a worldwide survey of not for profits including Australian organisations.

Rebekah Dunn, responsible for growth for Mercer Pacific clients in the not for profit sector, says although data mostly aligned with global statistics pooled from recent research, key differences show Australia and New Zealand as more optimistic about returns on investment in the past three years and less optimistic about the future.

The reverse was reported in the global market; the data shows in the last three years Australian investors in the space were happier to take more of a risk.

“That stuck out,” she added.

The data comes from Mercer’s 2022 Global Not-for-Profit Investment Survey, with Australian and New Zealand participants including a mix of 64 per cent charities, private or community foundations and 32 per cent healthcare and university sector investors.

Results show 71 per cent of not for profit investors in the pacific region say their portfolio exceeded its financial objectives in the past three years, compared with only 49 percent globally.

“However, if you look at meeting objectives over the next three years, the Pacific region is less optimistic” she said.

The lack of confidence, Dunn suggests, will likely reflect investments moving forward.

Dunn caveats the results by adding the data could possibly be skewed due to the conflict in the Ukraine and Russia as this was unfolding as data was collected.

The Mercer Pacific team collaborated with Mercer’s global team to seek feedback from the sector.

“Due to inflation which has skyrocketed in a historically small amount of time, Australian investors are now more cautious,” Dunn says.

“Australian investors are looking to expand further into more alternative assets. They are looking to increase their exposure to private market sectors like real estate, infrastructure, equity and debt, and are seeking to get their fixed income allocations to work harder.

“We looked at what they expected to change about their strategic asset allocations, in anticipation of higher interest rates and inflation and they are seeking decreased allocation to sovereign bonds, to reduce the interest rate risk.

“With cash rates and interest rates going up substantially, it has impacted Australian future investing in a unique way.”

Further she says Australian investors are unique in that they have been very comfortable with the illiquidity of unlisted real estate and infrastructure investments.

“There are opportunities there, with less correlation to other markets,” she forecasts.

Conversely, global for purpose investors have been “looking for opportunities everywhere.”

She says globally and in the pacific there is a lot of emphasis on sustainable investing.

She describes the Environment, Sustainability and Governance (ESG) investment space in Australia as “quite mature” with ESG integration sitting at 96 per cent, with endowment and foundation investors either already integrated ESG or looking to integrate ESG in their investment process in the next 12 months.

This compares with 83 per cent globally.