UK institutional investors and wealth managers are increasingly looking to frontier markets for diversification but want more ESG data if they are to boost allocations, new research from Dragon Capital shows.
The study by Vietnam’s largest independent asset management company with UK investors who collectively have over USD105.25 billion in assets under management found almost all see frontier markets as vital for diversification.
Almost six out of 10 (59 per cent) strongly agree and 37 per cent slightly agree that frontier markets provide attractive diversification benefits from emerging and developed markets. Around 89 per cent questioned agree that frontier markets offer some of the best opportunities to find hidden gems in the investment management world.
Nearly nine out of 10 (89 per cent) say ESG credentials are important when investing in frontier markets, with 26 per cent describing them as very important. The study found 89 per cent expect the importance to increase over the next three years.
Investors however want more ESG data if they are to increase allocations to frontier markets – 89 per cent say if frontier markets and funds investing in them had more data to illustrate their ESG credentials and willingness to make improvements inflows will grow.
Investors believe fund managers will work harder to help companies raise their ESG credentials – 85 per cent expect an increase in fund manager intervention over the next three years.
In terms of which factors were most important when selecting a frontier fund manager, all investors chose the longevity of the fund with the manager’s track record and liquidity also highly rated.