Institutional CIOs Uncertain Portfolios Will Meet Targets

January 7, 2010 ( - Morgan Stanley Investment Management's (MSIM) inaugural Institutional CIO Confidence Index finds chief investment officers are uncertain that their investment portfolios will meet performance targets over the next 12 months.

Ranging from a scale of -100 (not confident) to +100 (totally confident), the Institutional CIO Confidence Index measured aggregate CIO confidence in the surveyed period at a modest 7.6, according to a news release. However, responses varied considerably, with the Index scoring a moderately bullish 20 among corporate pensions, a more restrained 10.6 among public pension funds, and a more bearish – 9.4 among endowments and foundations.

Fixed income is expected to be the main driver of positive investment performance in the coming 12 months, with high-yield and investment-grade corporate fixed income perceived as likely top performers in absolute terms, the announcement said. These are the only two asset classes that the CIOs indicated they expect, in aggregate, to beat the internal return targets set by their institutions.

Although the CIOs named U.S. equities as their number-three top performer for the next 12 months, average returns on the asset class are expected to fall short of long-term targets.

More than 30% of the CIOs reported plans to reduce allocations to U.S. equities in the next 12 months, and an equal share plan to reduce allocations to non-U.S. equities. Less change is expected in fixed income allocations, with almost two-thirds of the CIOs indicating that their institutions plan to keep fixed-income allocations stable at current levels. Roughly 80% of the CIOs plan to keep cash allocations steady over the coming year.

The neutral sentiment indicated in the Institutional CIO Confidence Index was also reflected in CIOs’ projections for a variety of macro-economic indicators, MSIM said. While predictions of U.S. GDP growth of 2.8% for the next 12 months can be seen as a bullish expectation at this point in the economic cycle, the CIOs participating in the Index expressed concerns about a host of risks that could jeopardize the recovery in the global economy and financial markets in 2010.

Developed by MSIM in partnership with Greenwich Associates, the Institutional CIO Confidence Index is based on the results of interviews conducted over a six-week period ending November 1, 2009 with 50 institutional CIOs from public pension funds, corporate pensions, and endowments and foundations. The participants represent an aggregate of $548.8 billion in assets under management, with an average of $11 billion per plan.