A new report from Natixis Global Asset Management highlights a number of valuable insights from their 2014 Global Institutional Investor Survey. A total of 642 institutions participated in the survey.
Institutional investors worried about geopolitical issues
Geopolitical risks are an inevitable concern for institutional investors, and it appears that 2015 will offer at least as much to worry about as 2014. In terms of economics, the year ahead offers a wide range of investment challenges for institutions. For example, Japan, the world’s third largest economy, has slipped back into recession. The Chinese economy is clearly cooling off and Europe is just sputtering along, with close to zero growth for yet another year.
Somewhat surprisingly, a solid 46% of institutions said that they expect equities to provide the best performance in 2015. That said, institutional fund managers are also being very selective about the regions where they are willing to invest. The overall optimism of institutional investors is, however, tempered by an understanding of the nature of modern markets, as 81% say they believe it will be difficult to manage volatility in the next few years.
Institutional investors face three challenges in 2015
Striking a delicate balance between return generation and asset protection – The Nataxis report points out that 46% of institutional investors believe equities will be the top performing investment class in 2015, 81% believe volatility will be a significant challenge over the coming years and 77% reported being concerned about tail risk.
Responding to short-term market movements while staying on target to fulfill long-term liabilities – Of interest, 8 out of 10 institutions participating in the survey say it is increasingly difficult to generate stable returns in the short term, while 6 out of 10 institutions report it will be a challenge to meet their long-term liabilities.
Identifying new sources of alpha as correlations continue to rise and markets become increasingly efficient – More than 55% of those polled report traditional asset classes are too highly correlated today to provide distinctive returns, and another more than 6 out of 10 admit they need to improve on traditional portfolio construction methods to achieve better than average results.
