In light of the current fiscal and monetary concerns that are gripping the minds of investors around the world, Institutional Asset Manager asked the heads of some of the world’s leading asset managers to share their thinking on portfolio management trends post-Lehman and beyond 2011 in concise fashion. Joseph Morgart (pictured), Senior Vice President, Alternative Strategies, Pyramis Global Advisors, responds:
"The top trend characterizing world investment markets from 2009 through 2011 following 2008’s global financial crisis (GFC) is volatility. Investors, institutional or retail, can ill-afford losses incurred – even those offset by periodic gains – but, more disconcerting for their long-term strategic planning are investment market risks they have experienced in the last three years when major asset classes have moved with high correlation: higher or lower.
"In 2010, Pyramis Global Advisors surveyed 138 UK and European institutional investors and found asset volatility – standard deviation of returns – was the top concern in the UK (61%), the Netherlands (53%), Switzerland (80%), and the Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) (83%). These same institutions told us that the top lesson they had learned after the GFC was risk management programs need improvement. Risk management improvement was cited by 31% of UK investors, 42% in the Netherlands, 63% in Switzerland, and 41% in the Nordic countries.
"As we spoke with survey respondents in the European community about investment strategies for managing volatility, a number of approaches were cited. Diversifying into alternatives was a top response. Many of these respondents indicated alternatives – hedge funds, market neutral strategies, private equity, real estate, commodities – are considered both risk reducers and return enhancers; sources of uncorrelated returns that offer the benefits of diversification and are sources of alpha differentiated from other asset classes.
"In the UK, 70% told Pyramis that they would likely diversify into alternatives, 33% in the Netherlands, 46% in the Switzerland and 56% in the Nordic countries."