Few big investors ready for shocks: Survey

FEW institutional investors across the globe say they are confident that they would be able to manage major events like oil price shocks that send markets into a tailspin, according to a new study.

It found that only 36 of those polled believe they have the tools to handle such events despite around 66 per cent considering that they are now increasingly likely to occur.

Institutional investors fear events such as oil price volatility, sovereign default and asset bubbles will become more frequent as financial markets become more interconnected.

However, their most-used risk management strategies - spreading investments across different asset classes and geographies - are less effective in dealing with the turmoil these events can unleash.

Less conventional approaches, such as risk budgeting and liability-driven investment, which protect against downside risk, were implemented at only 27 per cent of those surveyed.

Risk budgeting involves specifying the amount of risk investments are allowed to assume. Liability-driven investing involves investing with a primary focus on meeting future liabilities.

The survey also found that 56 per cent of firms believe that strategies to hedge against these major risks are too expensive while 36 per cent felt the products to manage them are not understood well enough.

The study by Allianz Global Investors, which focused on investor attitudes towards risk, portfolio construction and asset allocation, polled 735 institutional investors across North America, Europe and the Asia-Pacific.

AllianzGI chief executive Elizabeth Corley said in a statement: "With the anticipation of more frequent (high-risk) events, there is an important role for active investment managers in helping clients to understand, classify, measure and ultimately mitigate the downside impact from these events."

A version of this article appeared in the print edition of The Straits Times on June 17, 2015, with the headline 'Few big investors ready for shocks: Survey'. Print Edition | Subscribe