The second quarter issue
of The Cerulli Edge: Institutional Edition found that institutional investors and investment consultants are
augmenting their traditional asset allocations with risk-factor-based approaches
to portfolio construction. Cerulli reports that in order to address their clients’
needs, institutional managers are reshaping their capabilities with a greater
emphasis on product solutions for specific challenges, such as inflation or
currency risk, as opposed to investment strategies.
“Nearly 44% of managers we surveyed are focused on risk
management products and services, and more than 30% of managers are focused on
developing overlays, including tactical and currency,” said Cindy Zarker, director
at Cerulli Associates.
Since the financial crisis of 2008, Zarker said,
institutional investors have become more concerned about the liquidity of
vehicles, emphasizing the ability to quickly shift in or out of investment
vehicles or strategies. Outsourced chief investment officer providers who can
rapidly enact tactical allocation changes during extreme market events promote
that skill as a competitive advantage.
“The quality of investment performance and client servicing
models are only a starting point for asset managers trying to secure new
mandates and retain existing mandates with institutional investors,” said
Zarker. “Disruptive market events provoke fresh thinking about asset
allocation, paving the way for new product solutions.”