As institutional investors review their asset allocations periodically, they typically begin with capital market assumptions sourced from investment industry consultants for each asset class and strategy within their portfolios. The analysis in eVestment’s latest annual Capital Market Assumptions report covers nine different consultants (Aon, Callan, Cambridge Associates, Meketa, NEPC, RVK, Segal Marco, Verus and Wilshire) and over 1,000 data points from more than 40 consultant- and/or institutional investor-authored documents available in eVestment Market Lens. The complete report looks at capital markets assumptions for traditional equity and fixed-income investments as well as real assets, private markets and hedge funds.
Emerging Markets See Highest Expected Returns
After five years of negative performance, Emerging Markets have some of the highest expected returns. For both years of data analyzed in this report, Emerging Markets Equity had either the highest or second highest return assumptions. From the nine consultants analyzed, on average, Emerging Markets Equity intermediate-term return assumptions for 2019 were over 8%.
US Equities Expectations Lowered
The Equity market has experienced directional shifts for several years. When looking at consultants’ capital market assumptions for Equity, consultants lowered assumptions for US Equity strategies. Many long-term equity assumptions remained unchanged while others decreased. In 2019, the lowest return assumption across both time periods and strategies was Cambridge’s assumption for US Equity in 2019 at 3.4%.
Private Equity Assumptions Increased
Out of seven consultants’ intermediate-term Private Equity assumptions, all but one increased their assumptions. For long-term assumptions, Private-Equity followed a similar trend with three consultants increasing their assumptions for 2019 and two decreasing.
Other Key Findings:
- The spread between intermediate-term capital market assumptions for US Large Cap Equity decreased from 225bps in 2018 to 120bps in 2019.
- Intermediate-term assumptions for Bank Loans did not overlap at all in 2018 and 2019; in 2018 the range was 4.3% – 4.9%, in 2019 the range was 5.5% – 5.9%.
- In 2018 the lowest assumption for Emerging Markets Debt (Hard Currency) was Aon’s at 3.7%; in 2019 the lowest assumption for the same strategy was NEPC’s, at 4.75%.
- For their 2019 assumptions, NEPC increased their intermediate-term and long-term assumptions for Energy by 150bps and 175bps respectively.
- RVK was the only consultant to decrease their long-term assumptions for Private Equity.
How to Use Capital Market Assumptions Data:
Consultants can view how their own assumptions compare to the assumptions of their peers and institutional investors can review and compare these assumptions across various consultants.
Managers can use this data to assess which consultants are bullish on the strategies they manage.