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Global survey finds investors confident despite market risks

18 December 2014

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A survey of institutional investors that collectively manage $31trillion in assets has found confidence is high across the globe when it comes to meeting long-term objectives.

The research, by Natixis Global Asset Management, surveyed 642 investors, including public and corporate pension funds, sovereign wealth funds and insurers, in 27 countries.

It was intended to ascertain what investors felt their long-term prospects where and what they believe the risks to be.

Results of the survey showed that while investors are confident in their ability to meet their long-term objectives, they face short-term performance pressure that is likely to lead to reducing risks in their portfolio next year.

"Institutional investors have an enormous fiduciary responsibility to fund current goals and meet future obligations," said John Hailer, president and chief executive officer for Natixis Global Asset Management in the Americas and Asia.

"The current market environment makes it difficult for institutions to earn the returns that are necessary to fulfill both short-term and future responsibilities but building a durable portfolio with the proper risk management strategies can help investors strike a balance between pursuing long-term growth and minimizing losses from volatility."

Confidence in meeting long-term liabilities was high with 87 per cent of respondents saying they expect to meet them, although more than half of respondents believe that most other organisations will fail to do so.

80 per cent of institutions said it is challenging to generate stable returns, while 68 per cent expect it will be difficult to manage liabilities linked to increased longevity, the survey found.

The top four potential threats to investment performance in the next year are geopolitical events (named by 17% of institutional investors), European economic problems (13%), slower growth in China (12%) and rising interest rates (11%).

As they look ahead, institutional investors are wary that higher interest rates will contribute to choppy markets. Two-thirds of investors (67%) expect difficulties over the next three years linked to rising interest rates and 81 percent say it will be tough to manage volatility in that time.

According to the survey, as rates rise, institutional investors will adjust their bond portfolios and allocations. Sixty-one percent would move from long- to shorter-duration bonds, while others plan to reduce exposure to fixed-income (46%). More than a third (36%) would increase their use of alternative strategies.

"Institutions want to avoid being upended by a big swing in the markets and will position their portfolios accordingly," Hailer said.

First published 18.12.2014

Lindsay.sharman@wilmington.co.uk