According to new research from quant technologies provider SigTech, 70% of pension funds and other institutional investors believe demand for custom portfolio solutions will increase strongly. The disruptive market forces of ESG, indexing and digitization are driving this increased demand for customization.
Customized portfolio solutions are bespoke investment strategies that are developed to meet the specific needs of investors. Two thirds of those surveyed (67%) believe it will become one of the biggest growth areas in asset management and is one of the industry’s most exciting developments.
“One of the key reasons for growth in this market is that 75% of institutional investors said they are becoming increasingly sophisticated in their individual ESG requirements. In addition, investors are finding it difficult to find off-the-shelf products offered by fund managers that are fully aligned with their needs”, explained the authors of the research.
Another interesting conclusion is that 41% of participants believed fixed income was the asset class with the biggest need for customization, followed by 27% who cited commodities, 18% said equities and 14% mentioned hedge funds.
When it comes to implementing their individual ESG policies, the study found that institutional investors use a combination of solutions. In this sense, 65% use off-the-shelf products (i.e. without any customization), 60% use customized portfolio solutions with external partners, and 52% said they develop these internally.
“Investing does not have to be just about searching for an existing product that offers the best possible fit to the investor’s needs. It is about creating a product that 100% corresponds to the investor’s requirements. Our research shows that 69% of institutional investors agree with this view”, pointed out Daniel Leveau, who heads SigTech’s strategic initiatives for institutional investors.