According to Natixis Global Asset Management, while institutional investors are optimistic about equities in 2015, their outlook is tempered by market risks beyond their control and unknown liability risks ahead, particularly those linked to increased longevity...
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Pension funds and other institutional investors believe they will meet their long-term objectives, but they expect it will be difficult to earn stable short-term returns and manage liabilities tied to the extended lifespans of their beneficiaries, according to survey findings released today by Natixis Global Asset Management. Citing pressure to focus on short-term performance and their obligation to balance asset growth and protection, investors are cautiously pursuing innovative ways of generating income and alpha.
The Natixis global survey of 642 institutional investors, including public and corporate pension funds, sovereign wealth funds and insurers collectively managing $31 trillion in assets, explores current market outlook and strategies in portfolio construction, risk management and operations.
While institutional investors are optimistic about equities in 2015, their outlook is tempered by market risks beyond their control and unknown liability risks ahead, particularly those linked to increased longevity. Despite their need for asset growth, institutional investors are twice as likely to reduce portfolio risk as to increase it in the next 12 months. And even with the use of liability-driven investing strategies, the biggest challenge is their ability to generate sufficient returns.
Key findings of the survey include:
“Institutional investors, particularly pension funds, have a lot at stake as the portfolios they manage today are an important source of tomorrow’s income for the world’s aging population,” said John Hailer, president and chief executive officer for Natixis Global Asset Management in the Americas and Asia. “Our Durable Portfolio Construction platform emphasizes risk as the primary factor to determine asset allocation, which may give investors the broader perspective needed to withstand market changes and surprises and generate the returns they are seeking.”
Generating return in efficient markets
More than half (55%) of institutional investors agree that traditional assets are too highly correlated to provide distinctive sources of return. As the markets become more efficient, they are looking for new sources of performance. The survey found that most have turned away, in some measure, from traditional asset allocation and toward a greater use of alternative strategies:
Where’s the alpha? ESG investing
Many investors say they believe so-called ESG investing can be both a source of return and a way to reduce risk. An ESG approach to investing takes nonfinancial factors – environmental, social and corporate governance – into account to help determine the long-term sustainability and ethical impact of an investment. The survey showed:
Market picks for 2015
As they look ahead to 2015, institutional investors are wary of higher interest rates and in favor of equities. “Even as they perceive stocks as next year’s best investment category, institutional investors are cautious,” Hailer said.
Among the survey findings:
« In terms of asset allocation, real estate and value investments are favored by global institutional investors for next year: 40% plan to increase these strategies in their portfolio. Income generating investments is also in a good position, mentioned by 36% of respondents », states Christophe Point, Managing Director, Head of France, Geneva and Monaco at NGAM Distribution.
Next Finance , December 2014
Article also available in : English | français
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