NEW YORK, April 20, 2017 — OFI Global Asset Management, an OppenheimerFunds company, and Greenwich Associates, released Institutional Perspectives: The Future of Emerging Markets Investing, a new report examining how institutional investors are shifting their views on emerging market investing over the next decade. The report is based on interviews with 121 institutional investors representing corporate pensions, public pensions, endowments and foundations, defined contribution plans, union plans, and investment consultants in the United States and Europe.
“Institutions recognize that the expanding middle class in emerging countries will contribute to long-term global economic growth,” said Steve Paddon, Head of Institutional & International at OFI Global Asset Management. “This study can help to advance conversations with institutional clients as their appetite for emerging market investments grows over the next decade.”
Ten years from now, respondents believe that emerging market economic development will be driven by increasing levels of education, modernizing infrastructure and innovation. The study found that institutional investors see the shift from “old economy” to “new economy” fueling fundamental change across these markets.
“Institutional investors see the evolution of emerging market countries from resource-based, commodity-dependent economies to more diversified and dynamic economies as the dominant trend for the next decade,” said Andrew McCollum, Managing Director at Greenwich Associates. “As that transformation takes hold, investment managers’ ability to generate alpha will require a much more integrated investment process that focuses on bottom-up fundamentals but blends top-down macroeconomic and political perspectives.”
Demand for external expertise on emerging markets in institutions is growing. The study found that nearly a quarter of endowments, foundations and corporate pensions with less than $1 billion in AUM say they expect to hire a new emerging market equity manager in the coming year, as do nearly 20% of public funds of the same size.
“Once again institutional investors are looking beyond today’s markets to how they can effectively meet their future return targets,” said John McDonough, Head of Distribution and Marketing at OppenheimerFunds. “We remain committed to bringing them unique insights that come from being at the forefront of global investing for almost 50 years.”
In contrast to some investors shifting towards beta strategies, 78% of U.S. institutions participating believe that active strategies will be their main vehicle for obtaining emerging market exposures in the next ten years. In addition, respondents noted that 85% of European and 31% of U.S. institutions expect to incorporate environmental, social, and governance (ESG) principles into their investments in emerging countries.
Interviews were conducted by Greenwich Associates with 121 institutional investors, from the U.S. and Europe, between November 2016 and February 2017.
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. The stocks of companies with favorable ESG practices may underperform the stock market as a whole. The alternate weighting approach employed by the Fund (i.e., using revenues as a weighting measure), while designed to enhance potential returns, may not produce the desired results.