Last updated: 13:08 / Tuesday, 16 February 2016
Cerulli Associates

U.S. Institutions Gravitating Away From Pure Beta and Rebalancing Portfolios

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U.S. Institutions Gravitating Away From Pure Beta and Rebalancing Portfolios
  • Institutional investors in the United States are gravitating away from pure beta and duration-focused equity and fixed-income exposures
  • Most are drawing lessons from the major losses experienced in 2007-2008 and taking precautions after years of post-financial-crisis gains
  • institutional investors are interested in absolute return, alternative credit, or infrastructure strategies

According to the latest research from Cerulli Associates, institutional investors in the United States are gravitating away from pure beta and duration-focused equity and fixed-income exposures.

"Institutions are considering the implications of volatility and constrained liquidity on their long-term goals and beginning to rebalance portfolios accordingly," states Alexi Maravel, director at Cerulli. "While some are acting based on pressures outside of those in the financial markets, most are drawing lessons from the major losses experienced in 2007-2008 and taking precautions after years of post-financial-crisis gains."

"Equity markets are struggling with the worst start to a calendar year in a decade and interest rates are near historical lows. Beneath the headlines are numerous indications of a change in the 'risk-on' approach that has benefited so many investors," Maravel explains. "Conversations with both institutions and asset managers seem to begin and end with concerns about corporate spread widening and bond market liquidity."

Many types of institutional investors are interested in strategies in which an investor can capture returns with low or no correlation to their other investments, such as absolute return, alternative credit, or infrastructure strategies, all of which tend to be actively managed.

"Institutions are increasing their awareness of the vulnerability to risk and volatility and it's pushing institutions to re-allocate away from the passive index investments-pure market beta exposure-they have favored in the past six or seven years," Maravel continues.

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