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New institutional investor insights

Diversification is our highest-conviction idea. Institutional investors need to broaden market exposure to more opportunities and risks to reach long-term objectives in today's low-yield environment.

Best idea
  • Our top three ideas are inclusive growth, affordable housing and resource efficiency, which span a range of asset classes and investment strategies.

Impact investing

Opportunities and positioning

Broadly speaking, we see solid opportunities as investors are increasing their focus on finding investment solutions to social and environmental challenges together with attractive financial returns. The range of opportunities for institutional investors in terms of asset class, investment size and desired risk-return profile has increased over recent years.

The inclusive growth theme is pursued via a private equity strategy that is global in nature and primarily targets emerging markets. The thesis is that low-income customers are paying customers and that those customers are underserved. We look at areas like financial services — credit, savings, insurance, remittance — and find companies that are exclusively targeting that low-income demographic. The products need to be designed differently. The approach to customer acquisition needs to be tailored. Healthcare and education also form subsectors of this strategy as well. We believe there are ample profitable and sustainable businesses that can have significant inclusive benefits.

Another area of interest and focus is an affordable housing real estate strategy focused on preserving affordable housing stock in the U.S., keeping rents affordable for existing tenants and implementing energy retrofits to reduce costs and benefit the environment. The idea is to provide housing stability for working Americans.

Resource efficiency is an additional private equity investment strategy that brings efficiency to value chains in multiple sectors, ranging from real estate and agriculture to manufacturing. It can either involve companies providing services to those value chains or disrupting the value chains themselves.

Risks to our outlook

At a macro level, we recognize that many problems cannot be solved by impact investing alone. Governments, or other public sector stakeholders, need to want to address these issues too.

A challenge, rather than a risk, is measurement. As an industry, we need to ensure that investment decisions are based on evidence and the investment activities are making the right impact. While many managers do this individually, we need to come together to establish measurement standards. This will underpin the credibility of impact investing. 

Portfolio context

A portfolio’s exposure to impact investing is a function of many wide-ranging factors. It could be defined in a trust’s investment objectives, driven by demand from beneficiaries, or a strategy set by an investment committee, to name just a few.

As it seeks different objectives from the risk and return metrics offered by many traditional investments, impact investing is often considered an alternative asset class or strategy. At Nuveen, however, we can, and do, apply this approach across all asset classes, pursuing positive social and environmental impact alongside competitive financial returns.

The wide variation of risk-return profiles across the asset class spectrum for impact investing means that institutional investors should be able to include it in portfolios whether they are seeking income, capital growth or other goals.

This variety of risk-return options has advantages and disadvantages. It requires additional layers of due diligence, which involve a deep dive into the investment’s ability (and that of the investment manager) to deliver on the specific impact, the desired returns and the expected risks. But on the plus side, there are now many more options for institutional investors to improve outcomes in terms of impact and their portfolio’s risk and return characteristics.

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This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. A word on risk All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investing involves risk. Foreign investments are also subject to political, currency and regulatory risks. These risks may be magnified in emerging markets. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage. Portfolios that include lower rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are considered to be speculative, the credit and investment risk is heightened for the portfolio. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Socially Responsible Investments are subject to Social Criteria Risk, namely the risk that because social criteria excludes securities of certain issuers for non-financial reasons, investors may forgo some market opportunities available to those that don’t use these criteria. Investors should be aware that alternative investments including private equity and private debt are speculative, subject to substantial risks including the risks associated with limited liquidity, the use of leverage, short sales and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not suitable for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy.

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This information does not constitute investment research as defined under MiFID. In Europe this document is issued by the offices and branches of Nuveen Real Estate Management Limited (reg. no. 2137726) or Nuveen UK Limited (reg. no. 08921833); (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3BN), both of which entities are authorized and regulated by the Financial Conduct Authority to provide investment products and services. Please note that branches of Nuveen Real Estate Management Limited or Nuveen UK Limited are subject to limited regulatory supervision by the responsible financial regulator in the country of the branch.