Managers turn cautious about 2012, finds Towers Watson survey

Fund managers have turned significantly more cautious about the prospects for world growth and investment returns, according to a global survey of investment managers conducted by professional services firm Towers Watson.

The findings are in contrast to last year’s survey when managers expected the recovery to remain on track and were bullish on public equities and emerging markets.

Robert Brown, chairman of Towers Watson’s global investment committee, said the global economic recovery remains elusive and fragile, set against extreme indebtedness in the Western world and weak and uncertain prospects for growth in most markets.

“The second half of 2011 was a reminder that these fundamentals hadn’t gone away and have clearly influenced managers’ outlook for 2012. As such this influential group of investment managers have shifted from expecting a continuing path to recovery and the avoidance of a double-dip recession in some markets, to anticipating a more volatile and patchy period defined by increased levels of risk, some growth and significantly lower returns.”

Their optimism from last year, and the year before, has been replaced by a less sanguine view about investors’ propensity to take risk in 2012, with managers’ significantly reducing the returns they expect from risky assets. A further indication of the change in sentiment is that most economies are expected to have significantly lower growth in 2012.

The global survey, conducted at the end of 2011, reveals investment managers’ renewed concerns about recession and financial risks, driven by slower than expected economic recoveries in most developed markets and nervousness regarding the Euro zone sovereign debt crisis.

The survey, which includes responses from 114 investment managers (with AuM of $7.8trn for institutional investors and $1.9trn for retail investors) again noted the Euro zone crisis as the main risk to global economic stability, highlighting an expected slide into recession in some countries, including the UK, during 2012 and the prospect of sovereign default.

They view Greece as being the most likely to default, necessitating debt rescue and restructuring, followed by Portugal, while they expect contagion to other Euro countries as unlikely.

Brown commented: “Euro zone countries face highly political long-term structural reforms, as well as fiscal austerity, which will be a tremendous challenge to implement, pushing out further any real global recovery. Politics have become enmeshed in the financial world since the global economic crisis began and managers have justifiably identified this as the top issue for them.”

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