Institutions cannot react quickly to market volatility because it takes them months to change their asset allocations, says a survey of 56 global investors.
Over 40% of 56 respondents say it would take three to four months to decide to change asset allocation and develop a strategy to implement the change. About a third say it would take more than six months.
Lengthy decision making is a well-known problem within institutional investment, but the issue appears magnified in the face of market volatility of recent years.
Anthony Fasso, the international chief executive and head of global clients at Australia-based asset manager, AMP Capital, says: “This is concerning as it implies that more than a third of schemes are not able to react quickly to market volatility.”
AMP Capital, which carried out the survey of investors who collectively manage $1.9 trillion (€1.5 trillion) of assets, quotes a chief investment officer of a US pension plan with over $1 billion of assets as saying asset allocation decisions are “slow and inflexible”, with board approval needed for decision taken at staff level.
Fasso adds that investment decision-makers at retirement plans recommend speeding up the decision-making process regarding asset allocation changes, as well as making the process more independent from plans’ trustees and boards.
The AMP Capital institutional investor report also finds that an increase in allocations to equities is a main aim of respondents for the next year, with a higher return being their main overall objective.
Absolute returns, inflation-plus instruments, and liquid and illiquid alternatives are seen as the best ways to increase returns and decrease portfolio risk.
Regardless of this marked enthusiasm for alternatives, AMP Capital says, decision makers at pension and retirement plans do not expect a seismic shift in asset allocations during the next year because any 12 months is too short for plans to initiate and execute dramatic asset allocation changes.
Only 15% of respondents said it took between one and two months to implement a strategy to change asset allocations.
©2014 funds europe
