Wealth managers seek third-party support for ESG investment solutions and integration
A 73% majority of wealth managers worldwide are either invested in illiquid assets or are considering doing so in the upcoming year, according to recent research from Mercer.
In a poll of 125 wealth managers conducted by the asset manager in 26 countries and six regions, a resounding 86% of respondents cited higher yields or higher investment returns as the primary drivers of decisions to buy private market and other illiquid investments, reported International Adviser.
The poll also revealed obstacles to buying alternative and other illiquid assets. Lock-up periods were cited as a worry by 71% of wealth managers, and 59% said they lacked the resources necessary to conduct the essential due diligence prior to investing.
Read more: Alternative investment industry has to ascend, says association
Only 21% of those surveyed indicated their clients believed the costs were excessive given the types of investment funds and strategies they offered.
The poll revealed that 82% of wealth managers had seen a noticeable increase in the demand for ESG investments in the previous year.
Regarding shifting cultural attitudes toward social concerns, corporate governance, and climate change, 64% of those surveyed indicated their clients are adopting ESG, while 46% stated their clients are also trying to reduce reputational risk.
When asked to list their top two business priorities for the following two years elsewhere in the study, "enhancing the client experience" came in first place (76%).
Firms looking to achieve this are considering outsourcing or getting assistance across a number of elements, including portfolio construction (14%), portfolio operations (14%) and portfolio governance (17%).
Approximately 30% of respondents said they already outsource their reporting needs, 36% said they support outsourcing manager selection, and 60% said they support outsourcing investment research.
Nearly 42% of respondents claimed they would look for further third-party assistance regarding ESG investing offers and integration.
Read more: Wealth managers falling short in addressing ESG problems
Amit Popat, partner at Mercer, said: “It is encouraging to see the majority of wealth managers embracing and investing in illiquid and other alternative asset classes, citing yield and return potential.
“With traditional asset classes unlikely to generate the same level of returns in the next few years as they did in the past, it is critical that wealth managers’ client portfolios are positioned to seize the widest range of investment opportunities.”
Popat said that even the biggest wealth managers may find it difficult to access this broad range of investments operationally.
Because of this, many people have worked with or are thinking about working with independent third-party companies that offer specialized services to satisfy their unique demands.
Since these services are essential to attaining the goals of their own clients, they are of special importance when it comes to access to global managers, best-in-class research, operational due diligence, and implementation services.
