Institutions’ Growing Appetite for Risk

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The search for higher returns is the leading driver for asset allocation shifts

Risk-On-Image

The 2016 US presidential election sparked waves of populism and uncertainty. For the financial markets, the possibility of a Trump presidency seemed to cause a risk-on mentality, as his tweets were met with positive market reactions. And even before the Dow Jones Industrial Average surpassed 20,000, institutional investors signaled they were also adding risk. The survey fielding of our US Institutional Investor Brandscape report, fielded from mid-October 2016 to early January 2017, gives us a unique snapshot of the reactions of institutional investors in a distinct period for all of us.

Both pensions and non-profits de-emphasized de-risking as a driver of asset allocation changes this year. While de-risking is less of an issue for non-profits compared with pensions, this finding corresponds to the risk-on market mentality. Importantly, de-risking was the leading driver of asset allocation shifts among pensions in previous years and $1 billion-plus pensions continue to focus on risk. At the same time, corporate defined benefit plans place greater emphasis on the search for higher yield at the expense of de-risking. Continue reading