A recent survey by Allianz Global Investors indicates that contrary to the belief that 2008 and the financial crash was year zero for risk management, not much has changed since then.
Respondents overwhelmingly called for widespread and systemic reform of investment practices to ensure that the global financial crisis isn’t repeated.
The survey, where 755 institutional investors identified their main concerns, showed that in the lead-up to the financial meltdown of 2008, investors' top three strategies were diversification by asset class, geography or duration management.
A total of 63 per cent of respondents believed these strategies didn't provide enough protection, but their use in fact only increased after the crisis.
“The lack of change in risk management strategies pre- and post-crisis is consistent across the globe,” the Allianz Global Investors’ investment manager's report said, “underlining the need for an international review.”
A large majority, around two-thirds, of institutions called for new strategies to help balance risk-return trade-offs, provide greater downside protection and replace traditional approaches to risk management.
Nearly half of the respondents said their company is willing to pay more to access better risk management strategies, and 54% say their organization has set aside additional resources to improve risk management.
Neil Dwane, global strategist with AllianzGI, responded to the results, stating, “a considerable number of investors do not show much confidence in their ability to manage risks effectively in both up and down markets.”
He added, “institutional investors do seem to recognize the need for more effective risk management solutions. However, it is time for asset managers to innovate and offer solutions and products that will help clients to navigate the low-yield environment without exposing them to inappropriate levels of volatility.”
Two thirds of institutional investors said they had a good understanding of alternatives, meanwhile, but many are allocating on these asset types, suggesting education and understanding can be improved in this area.
AllianzGI conducted the study after interviewing 755 institutional investors in 23 countries during the first quarter of 2016.
Time for investors to adjust their expectations?