Active managers brought in a sizeable chunk of new capital in the first quarter as investors sought to take advantage on lower valuations and seize opportunities in emerging markets.
Asset flows to active managers rose from $43 billion in the first quarter of 2022 to $51 billion in the first quarter of 2023, an 18 percent increase year-over-year, according to the latest report by Investment Metrics, a Confluence company. The report showed that growth in asset flows has largely been driven by emerging market strategies, which received over $1 billion from institutional investors in the first quarter, significantly up from the $395 million recorded during the same period last year.
“Some institutional investors were clearly trying to take advantage of the low valuations in public equities and in emerging markets,” the report said.
Asset managers that reported the largest increases in assets in the first quarter include NISA Investment Advisors, with $11.5 billion in flows; PIMCO, with $7.6 billion; and J.P. Morgan Asset Management, with $4.3 billion, according to the report.
The surge of new capital into active strategies follows a period in which active managers demonstrated their expertise during the increased market volatility seen in 2022. For example, 45 percent of U.S. large-cap growth funds outperformed the market last year, a significant improvement from the 21 percent that outperformed in 2021. Active managers have long argued that they do their best work during volatile times because they can respond quickly to market-changing events, such as rising interest rates and Russia’s invasion of Ukraine.
Fixed-income strategies also gained assets in the first quarter as investors flocked back into the bond market to lock in the higher yields. Asset flows to U.S. fixed-income mandates grew from $24.6 billion in the first quarter of 2022 to $28.4 billion in the first quarter of 2023. Within U.S. fixed income, investors have shown a preference for U.S. corporate bond strategies, according to the report.
Investors also showed considerable interest in emerging market debt, with the expectation that EM countries will make smaller rate hikes following a similar move by the U.S. Federal Reserve. According to Investment Metrics, two of the leading active investment strategies in terms of assets acquired in the first quarter were emerging market debt strategies — one from PIMCO and the other from RBC Bluebay Asset Management.
“Active managers in the institutional investment industry saw an excellent start to the year,” the report concluded. “Good timing played a factor for institutional investors as public equities and fixed income provided good returns in Q1 2023. We expect this market trend to continue.”
