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Volatility top concern for global institutional investors in 2017 – survey

A survey of 500 institutional investors across the world shows they have “clear preferences” for active management and alternatives, according to Natixis Global Asset Management.

The survey sample included 500 institutional “decision makers” representing corporate pension plans, public pension plans, sovereign wealth funds, insurance companies, foundations and endowments.

Respondents were spread across Asia (62), Europe (208), Latin America (34), the Middle East (35), the UK (69) and North America (92).

The asset manager said the survey asked “pointed questions” about institutions’ opinions on risk, predictions on asset allocation, and views on market performance.

The survey was split in two parts, with the majority of respondents (340) polled before the US presidential election and 160 after.

“In many cases, the results have had a significant effect on their outlook,” according to Natixis GAM.

It said that, before the election, two-thirds of respondents expressed confidence in their organisation’s ability to handle the risks associated with investment performance; after the election, this fell to 53% among those surveyed.

The asset manager highlighted that volatility was investors’ top concern for 2017.

Half of respondents cited market volatility as the top risk concern, while 43% chose geopolitical risk and 38% picked interest rates.

Nearly two-thirds of respondents (65%) pointed to geopolitical events as the top source of volatility for 2017, 38% cited the US elections, and 37% the potential for changing interest rate policies.

The asset manager said the results showed that institutional investors preferred active management over passive – almost three-quarters say current market conditions are more favourable to active management – and that, over the longer-term, institutions project they will use passive investments less than they previously believed.

In a report on the survey, the asset manager noted that institutions anticipated adding 1% to current passive allocations over the next three years (a separate statement refers to 1 percentage point), and says that this compares with a 7% increase projected for the same time frame in an October 2015 survey.

In terms of asset allocation, half of those polled plan to increase their use of alternative strategies next year, with 67% using them for diversification and 31% for risk mitigation.

The asset manager said investors would increase their allocations to alternative investments in 2017 from 18% to 22% and equity allocations from 34% to 36%, and “dial back” on fixed income, from 35% to 32%.

Real estate allocations look set to fall from 7.4% to 6.2%, and cash from 5.1% to 4.5%, according to the survey report.

Half of respondents cited increasing alternative allocations as the approach to increase diversification.

Diversifying by sector and geography (38%) and integrating absolute return strategies (36%) were the next most frequently cited approaches.

“Three-quarters of institutions believe investors may be taking on too much risk in the pursuit of yield,” said Natixis GAM.

“Based on their own allocation decisions, some may think they are guilty of the same behaviour.”

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