Survey Finds Varying Levels of Institutional Investor Confidence in the US Government’s Ability to Contain Pandemic

Eaton Partners examines institutional investors’ adaptive strategies to the market and outlooks across several key considerations regarding the coronavirus.

Eaton Partners’ latest LP Pulse Survey questioned 69 leading limited partners over the past two weeks on their insight with regards to the impact and concerns about COVID-19.

About 70% of respondents said that the outbreak is having an effect on their daily investment-related operations, including current trade executions and forecasting investments, and pacing plans for the remainder of the year. Those activities are being impacted by externalities in market valuations (29% of respondents say), with the coronavirus (29%) and a potential US recession (33%) rounding out the heavily weighted answers with regards to speculation on what will affect markets most severely.

The survey also found varying levels of confidence in the US government’s capability to contain and eradicate the spread of the virus. While 13% are very confident in the government’s ability, 49% are somewhat confident, and 38% are not confident at all.

More than three-quarters (78%) of respondents said these concerns don’t influence their participation in the market and said they will maintain their holdings without reducing allocations to specific regions because of the virus.

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The majority (70%) of respondents said that the federal government’s decision to cut interest rates from 1.0%–1.25% to 0.0%–0.25% was “not an appropriate remedy to the coronavirus crisis because the problem is biological, not financial, in nature,” Eaton Partners said.

Opportunities and shortfalls are surrounding the coronavirus outbreak. Leuthold Group strategist Scott Opsal identified 148 shares of 4% yielding securities that materialized in the wake of COVID-19’s influence. The alternative assets industry, according to data provider Preqin, grows in unmitigated fashion as investors seek to capitalize on opportunistic returns in relatively shaky markets.

“There’s a general feeling that private equity could be a well-positioned, steady-hand investor during the recent coronavirus-induced volatility. In fact, our survey found that 52% of investors believe PE is the most appealing alternative asset class going forward, on the heels of lower interest rates, falling valuations, and more clarity in the presidential race,” Eaton Partners’ Peter Martenson said.

IHS Markit is predicting a material risk of the economy grinding into a recession by the second quarter of this year and lasting until the end of the year. In the year’s second period, the drop in gross domestic product (GDP) will total 5.4% annualized, the firm’s chief US economist, Joel Prakken, wrote in a report. Such a negative forecast “doesn’t feel like a stretch,” he argued.

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Tags: Coronavirus, COVID-19, Eaton Partners, institutional investors, Private Equity

The California State Teachers’ Retirement System (CalSTRS) has closed all seven of its member service locations as the pension plan transitions employees to shelter in place, as California orders all 40 million Californians to stay at home. It also shut its contact center to plan participants Thursday and Friday.

The West Sacramento-based retirement system on Thursday closed all seven member service locations in Fresno, Glendale, Irvine, Riverside, San Diego, Santa Clara, and West Sacramento, some of which have mandated residents to shelter in place earlier this week.

The educator fund, which has $250 billion in assets, had already started pulling back on member services last week, amid greater calls for remote work in light of the coronavirus pandemic. On Tuesday, CalSTRS closed its Santa Clara office after the county mandated residents to stay home. On Monday, it canceled walk-in services and reduced phone hours.

California is the third-most impacted state in the United States by the COVID-19 disease.

All of this is shaping up to a new normal for public employees, who are adjusting to the new dynamics of working from home. On Thursday, board members of the California Public Employees’ Retirement System (CalPERS), the other giant California pension, dialed into a meeting, which already had been canceled twice this week.

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CalSTRS has an emergency location in the event of a disaster, but the COVID-19 pandemic requires a technology-dependent response, such as increasing the use of teleconferencing.

Earlier this month, CalSTRS CIO Chris Ailman went over quarantine procedures with an investment committee, noting that staffers at the pension system could switch to work from their homes “fairly effectively,” though he hoped “we don’t get to that.”