More institutional investors looking to outsource investment processes – Mercer

More institutional investors are looking to outsource aspects of the investment process due to increased regulation and complexity, according to Mercer Germany.

Faced with a low-rate interest environment, investors still want to achieve their investment goals with many looking to outsource aspects of their investments to gain expertise that is not available in-house, the consultancy said.

Mercer Germany commercial leader and partner, Olaf John, noted: “Low-interest rates, the search for alternative asset classes and the associated complexity of capital investments, as well as increased regulatory requirements are the main challenges for many investors.”

Private markets and the requirements for sustainable investments, he said, as an example, are areas where there is a lack of internal expertise or human resources.

"We are seeing a rapidly growing interest among investors in service providers who insource parts of their capital investments so that investors can concentrate on their core business," John said.

This is also shown in a study in which Mercer examined how future-proof the capital investments of institutional investors in Germany are. For many investors, the scope and quality of internal resources is at least partially insufficient (47 per cent) to cope with the increased complexity and to achieve the required target returns.

Almost half of the investors surveyed (43 per cent) think their current decision-making processes are not efficient enough to benefit from short-term market disruptions, for example.

The complexity of achieving sufficient returns is a constant issue, because only a few investors expect interest rates to rise in the medium term (6 per cent). Most investors do not expect interest rates to rise for the time being, which will make it more difficult to achieve the necessary target returns in the long term.

John added that the asset classes that investors want to develop the most are private markets and environmental, social and governance (ESG) strategies. "With regard to regular reporting, most investors see the integration of sustainability (29 per cent) and regulatory requirements (28 per cent) as the greatest challenges,” he concluded.

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