KEYWORDS: absolute return, asset allocation, assets under management, AUM, endowments, financial crisis, global financial crisis, Institutional Investors, Liquidity, liquidity risk, portfolio diversification, risk management
Daniel Farley, Rebecca Schechter, Will Kinlaw
Based on lessons learned in the financial crisis, today’s institutional asset owners are changing the way they approach investing. They are reconsidering their asset allocation strategies, striving to balance the need for liquidity with the need for returns, and placing a new emphasis on risk management. Alternatives play a more vital role in portfolio construction, but investors are learning that the effective use of alternatives requires that right oversight, staff and understanding.
Five years after the crisis, State Street has undertaken a comprehensive study of institutional asset owners to explore new thinking around investment and operating models. This Vision paper outlines the findings of our research, including investors’ new strategies around asset allocation. It also reveals asset owners’ key operating challenges, with data integration at the forefront, and how they are minding the talent gap in the current market environment. Using this insight and our own experience, this paper delves into liquidity management solutions available to asset owners, the direction portfolio management is headed and the actions asset owners must take to be successful in this new environment.