Investment consultants have their work cut out for them as they advise and guide asset owner clients through an increasingly difficult investment climate — which in some cases also has dragged down their assets under advisement.
According to P&I's latest survey results, total institutional assets under advisement for investment consultants slipped 0.6% to $46.85 trillion as of June 30, compared to $47.14 trillion the previous year. Over the same period, U.S. institutional tax-exempt AUA rose slightly — 2.7% to $27.1 trillion.
Nimisha Srivastava, the Charlotte, N.C.-based North America head of investments at Willis Towers Watson PLC, said her clients are generally concerned about the U.S. economy's ability to withstand higher interest rates and continue to grow. They also are worried about the likelihood of a slowdown, or recession, which would have longer-term implications for economic growth and has the potential to impact both asset prices and volatility negatively. These factors, in turn, could result in asset owners not reaching their return or strategic objectives, she noted.
Clients have focused more recently on "where they will get their required returns from … what levers they can pull in this environment of tightening global financial conditions and negative skew of downside risks," she said.
Ms. Srivastava said the firm is a "strong proponent" of diversification.
"We continue to believe asset owners need to be evaluating additional types of strategies they can add to their portfolios to make them more resilient in times of uncertainty," she said. "We have seen particular focus on real assets and hedge fund strategies this year. Given market developments, we (also) are currently strongly advocating that asset owners add or increase their alternative credit allocations."
Alternative credit, with its high carry and low-duration characteristics, is a "strong play" in the fixed-income space, she said. "We believe it has the potential to deliver strong risk-adjusted returns from here," she added.
Ms. Srivastava also said: "Real assets exposure has benefited client portfolios by not only adding a diversified revenue stream but also inflationary protection as well. Private credit offers this as well, particularity given the floating rate nature of certain lending strategies."
Willis Towers Watson had worldwide institutional AUA of $4.7 trillion as of June 30, up 30.6% from June 30, 2021, making it the third-largest consultant in P&I's database. Ms. Srivastava attributed the increase in AUA to "a combination of growth and new client expansion" as well as client portfolio diversification.