#1 – Institutional Investors Finally Deploy Cash
Cash strategies saw net outflows of $41 billion in the third quarter of 2020 – the first net outflow quarter in two years and the largest quarter of net outflows since Q3 2008. A look at ongoing and potential institutional mandates suggests a broad set of asset classes could see some attention from plan sponsors in 2021.
Number of Ongoing and Potential Institutional Mandates
Source: eVestment, as of 10/15/20
Institutional demand for growth has fueled a 100% increase in the number of privately held startup companies valued at $1 billion or higher, over the past two years. There are now over 500 of these “unicorns”, with nearly three-quarters based in either the United States or China. Industry representation has been led by fintech, internet software & services, e-commerce, and artificial intelligence. The total unicorn cohort now makes up $1.6 trillion in aggregate valuation.
Unicorns % by Country
Source: CB Insights
Unicorns % by Industry
Institutional ESG research activity points to increasing interest in sustainable and impact investment screening. Within active global equity mandates, dedicated ESG strategies also saw a spike in market share during 2020.
Most Commonly Screened ESG Fields
Active Global Equity Strategies
Faced with Covid-related cash flow challenges, many colleges and universities opted to issue debt in the municipal bond market rather than tap into their endowments. Yet despite the increase in new issuance, massive demand for high-rated debt kept yields low.
S&P Municipal Bond Higher Education Index Yields
Source: S&P Dow Jones Indices LLC
Corporate pension discount rates stabilized in the second half of 2020 after plummeting in Q2. Plans with 13-14 year durations saw discount rates used for pension accounting decline from 2.6% at 6/30/2020 to 2.4% at year end. The strong equity rally in 2H 2020 finally translated into gains vs. pension liability growth after the Q1 equity selloff and subsequent dip in corporate bond yields initially wiped away years of gains.
Corporate Pension Discount Curves
Sources: FTSE, FactSet
Equity Returns Finally Outpace Pension Liabilities
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