• Blog
  • 3 Min Read
  • February 3, 2022

COVID: How Institutional Investors Responded Then and Now

Flash Poll Series

A recent Clearwater poll revealed the ongoing COVID pandemic continues to impact investment strategies. More than a third of investors surveyed said their investment strategies will change this year in response to the pandemic.

At Clearwater, we wanted to get a better understanding of how the pandemic is shaping investment strategies. We polled more than 140 asset managers and owners representing more than $5 trillion in AUM to gain insight into changing strategies.

Our survey asked how their investment strategy changed at the start of the pandemic in 2020 and how that compares to what they have planned for 2022 in the wake of the recent omicron surge. We expected to see changes given the many unknowns and related market volatility early in the pandemic relative to what investors are dealing with today – and we did. At a macro level, 58% of companies reported making changes to their strategy in 2020, albeit only 13% said the change was material. Looking forward from today, 34% plan further changes to their strategy and 5% said they will be material changes. Although these numbers are much lower than 2020, it’s still a meaningful percentage.

Investors’ early reaction to COVID was biased toward conservatism, with liquidity increases, fixed income duration decreases, and credit quality increases, but tempered with meaningful increases to equities. Current plans show companies largely holding the course but continuing the trend of focusing on private assets while finetuning the profile of their fixed income portfolio. Their responses suggest investors have learned to live with COVID as our society tries to do the same. More detailed observations for the two periods follow.

Early COVID pandemic impacts on investment strategy

  • 45% increased portfolio liquidity, while only 7% decreased
  • Most investors held steady on fixed income duration, but a meaningful 27% decreased and 16% actually increased duration. The percentages were similar for credit quality, with 25% increasing and 7% decreasing quality. Conservatism was evident on exposure to affected sectors like retail, with 31% moving away, however 6% saw a buying opportunity.
  • Equity allocations went up for 28%, almost double the number decreasing allocations. We expect these investors took advantage of what became a historic buying opportunity.
  • As expected, private asset class exposure largely held steady with 70% reporting no change, but the trend of recent years to increase was still evident as 20% of companies indicated that was their plan.

Current COVID impacts on investment strategy

  • We asked these same companies about their planning going into 2022. Most companies, 80%, planned to hold steady across the various levers of their portfolio strategy.
  • Liquidity increases were tempered, with most companies holding steady or decreasing. However, a small percentage, 14%, plan to increase portfolio liquidity.
  • An equal number of companies planned to either increase or decrease fixed income duration at 12% each. It is interesting to see duration increases planned as we go into a rising rate cycle. However, a similar number of companies plan to improve credit quality, with only 5% planning to decrease it – an approach more consistent with rate increases
  • Despite the historic run-up in equity markets, 15% of companies plan to increase their allocation in 2022, with only 8% taking money off the table
  • The demand for private asset classes continues with 16% of respondents planning increases

We also asked participants about the other non-investment aspects of their business, such as insurer underwriting results. Like our daily lives, COVID’s pervasive impact was evident in the responses. Sixty-two percent reported COVID has impacted their business and 12% reported it was a material impact.

We also threw in a question about the respondents’ return of office plans. Like other surveys, we found that the majority, 58%, of these financial industry companies are currently operating on a hybrid office-remote model, with only 20% back to the office full-time. Further, the long-term effects of COVID on the way we work was evident with 63% saying these changes are permanent.

We are glad to share detailed statistics from our survey, please visit our website to download them here.