Eye for detail: What do key investment trends look like?

ESG is now going beyond environmental concerns – which key social and governance issues are taking centerstage for investors?
Ansari: From a social perspective, there is greater awareness amongst investors now about how organisations are being built. Key questions [revolve around] how diverse are the workplace and the workforce. And with the Covid-19 pandemic, many questions are around what kind of hybrid working can be offered [to employees].

There are many instances where several large corporates in both Europe and the US are having to offer hybrid working or a form of it as a means to attract talent. In fact, a number of institutions will have to embrace hybrid working in a very meaningful way to not only attract but retain talent.

From a governance perspective, one could almost argue that many investors have already adopted it in a meaningful way. Governance is one of the main pillars of investing which existed long before ESG was coined as a term and is a key component of how investors think about what kind of allocations to make.

Investors are keen to see how well-diversified board members are. We see many investors now wanting to get a greater grip on how well boards are constructed, how independent they are, and what kind of operational governance they have.

Is diversity, equality and inclusion (DE&I) a key factor for regional as well as global investors?
Ansari: Clearly DE&I – as it it now coined – is something which is very close to Mercer directly. So regionally, yes, it is [a key factor]. However, I wouldn’t say it is necessarily an awakening but more of a realisation that having a workforce which is from all walks of life in terms of background, contributes to the overall depth of knowledge within an organisation.

So, DE&I is being embraced in the region. We see many large Kuwaiti, Qatari and/or Saudi institutions diversify their workforce in terms of females and I think the realisation is that the overall running of an organisation is enhanced by a diverse workforce, which underpins it.

The Federal Reserve has raised interest rates, with additional hikes on the cards – how has that affected investor choices?
Ansari: As rates rise, yield will increase as well. But more of a broader question is how fixed income or debt assets sit in the portfolio? Investors have reacted in different kinds of ways. Many clients are looking at things like private debt, because unlike syndicated loan assets, they are more protected against elements like inflation rises. So ordinarily, rate rises would be one thing to react to. But given the current climate, around a backdrop of high oil prices, soaring inflation, potential pre-recession in Europe and the US, many investors are now having to take more alternative types of debt in the portfolio.

Oil has rallied since the beginning of the year, and cryptocurrencies have taken a hit. How does an investor curate a balanced portfolio in such a scenario?
Ansari: Interest rates and oil are normally inversely correlated. So it’s a sort of a fairly unique but an unusual situation. Clearly commodities – given the part of the world we’re in – is an asset class of choice for many of our investors, either directly or indirectly through many of the oil driven assets. So that’s not surprising.

In a way, crypto is a slightly nuanced asset class. Many of the investors that we speak to in the local market don’t hold crypto. However, generationally amongst the family offices that we speak to now, there is an increased interest of using crypto as a safe haven. We don’t necessarily have anything around crypto to offer to our clients. But clearly they are interested in what it means to have crypto investments in their portfolio and even go so far as to say that crypto [may be] the new reference haven relative to gold. Again, that’s a story which will play out over the next two or three years as crypto becomes potentially more regulated and a bit more mainstream.

What key steps has the company taken to meet its net zero target across majority of its funds?
Ansari: Let me answer it in two different ways. We have our own internal view around what net-zero should look like. We have 4,000 strategies which are ESG-rated and our new offices in Dubai are smart offices, having an ESG tilt towards them. But from a client perspective, we continue to onboard and rate managers, and increase our coverage of ESG rated managers.