Superannuation legislation and private credit are just two of the top 10 investment trends for this year, according to Simon Eagleton (pictured), Mercer’s business leader.

In Mercer’s crystal ball for 2010, the following areas have emerged out of the post-GFC dust:

1. superannuation legislation
2. private credit
3. emerging market growth
4. Environmental, Social and Governance (ESG)
5. deflation/inflation risks
6. Dynamic Asset Allocation
7. due-diligence
8. ‘micro’ moves
9. illiquid assets
10. diversification

Superannuation legislation would force change in how retirement savings were invested, and Eagleton predicted renewed interest in target-date approaches and their associated investment strategy glidepaths.

“The accountability of boards and trustees of super funds will also increase as members demand greater security of their retirement incomes,” he said.

Second, private debt lending rates were already in low- to high-teens, Eagleton said, “and at these levels, the supply of credit will be filled by private creditors and investment opportunities in private equity and private credit will grow accordingly”.

Third, the IMF predicted that slow growth of 1.3 per cent in advanced countries in 2010 would be outstripped by growth of 5.1 per cent in developing countries and a very rapid 7.3 per cent in developing Asia, Eagleton said. However, investment in emerging market equities had surged already, aided by the availability of ETF funds to retail investors.

Fourth, environmental, social and governance (ESG) factors would continue their rise on the radar screen, Eagleton said. “Investors and their investment managers will need to integrate ESG factors into their process or be at risk of being blindsided,” he added.

Firth, investors had become sensitive to governments inflating their way out of debt. “Typical inflation protection strategies are no longer especially cheap,” Eagleton said, and “we continue to emphasise that the risk of deflation has not yet been fully eradicated, particularly if governments can no longer guarantee the funding obligations of financial institutions.”

Sixth, Dynamic Asset Allocation (medium-term asset allocation tilts) will be de rigueur to capture market mispricing in the medium-term. “This approach replaces the ‘set and forget’ school of thought on strategic asset allocation,” Eagleton said.

Seventh, hedge funds took a major battering in the maelstrom of the financial crisis, with estimates of up to a third of the industry winding-up. Investors would re-think their approach to investing in hedge funds, Eagleton said, “seeking improved transparency of underlying risk exposures, less ‘directionality’ (or sensitivity to market movements) and more equitable fee bases”.