LPs fear trade wars as threat to global economy: survey

Institutional investors see trade wars and protectionism as the greatest risks to global markets, a fresh survey shows.

Some 42 percent of respondents fear what seems to be growing insularity in markets worldwide, including the U.S., a recent survey  from the Commonfund Forum shows.

In April the Donald Trump administration announced $50 billion of tariffs on Chinese goods, including soybeans and planes.

After China responded in kind, Trump said he was considering even more tariffs on $100 billion in Chinese goods, escalating fears of a trade war.

Jittery investors sold on fears, causing volatility in public markets.

Amid growing protectionism, interest in emerging markets is growing. Forty-nine percent of respondents said that emerging markets were the greatest opportunity for private equity strategy. U.S. PE came in second with 27 percent of respondents citing it as the best opportunity.

“Emerging market investments are related to the rise of the middle market consumers and products and is generally unrelated to tariffs and trade wars,” said Kevin Luke, president of Commonfund Securities.

“In the near term, there is uncertainty about the U.S. markets.”

Investments in emerging markets have been on the rise. Emerging-market PE deals increased 44 percent to $49 billion in 2017 from $34 billion in 2016, a recent report from the Emerging Markets Private Equity Association shows. EMPEA is the industry association for private capital in emerging markets.

The survey included responses from 200 foundations, endowments and public-pension investors at the 20th annual Commonfund Forum held in April.

Institutional investors came from 47 U.S. states and Canada, Peru, Chile and the U.K. and represent $356 billion in assets.

Half the respondents said the current bull market was coming to an end, and 58 percent expect the S&P 500 to underperform against the 20-year average of 7 percent.

Yet, almost half the survey respondents were cautiously optimistic about meeting their long-term target returns of CPI plus 5 percent over the next 10 years. (The consumer price index is the benchmark for inflation.)

“These investors recognize that recent market volatility is only a modest risk for their strategic investment policies,” Mark Anson, chief investment officer at Commonfund, told Buyouts.

This is a time for investors to assess how much illiquidity their portfolios can absorb, Luke said.

“Our advice to them is to stick with their investment policies, to focus on liquidity needs, and to recognize that over time their greatest risk is not having sufficient exposure to equity markets, both public and private,” Catherine Keating, president and CEO of Commonfund, told Buyouts.