Institutional Investors shake up their portfolios

Filed in Asset Management

Seeking to earn strong rates of return in market environment that is characterized by frequent bouts of risk aversion and turbulent price action can be challenging. So it is interesting to take a look at the planned investment allocations of US Institutional Investors to determine where the “smart money” is flowing.

Introduction:

Changes to asset allocations go through a long, deliberate and well-thought out process by Institutional Investors. Deciding to increase/decrease portfolios across asset classes where millions of dollars are at stake is of critical importance. For an Institutional Investor, this can mean the difference between having a well-capitalized pension plan or wealth fund.

Capitalizing on Emerging Market growth, Commodities and Uncorrelated Assets:

Examining how Institutional Investors will position their portfolios for economic, social and political trends, over the next 12 months may help identify those asset classes and Investment Managers that will do well in the future. Examining data collected by Deutsche Bank, it appears that Institutional Investors are looking to increase their allocations by more than 25% to 6 different asset classes over the next 12 months.

Topping the planned allocation increases are Emerging Market Equities and Hedge Funds, with increases of over 40%.

Key Conclusions:

Increased allocations to traditionally, non-correlated assets indicates that Institutional Investors continue to adjust their portfolios after the market losses suffered over 2008 and 2009:
- One of the main trend changes coming out of 2009 is the movement away from relative performance/returns.
- By increasing the portfolio allocations to Emerging Markets Equities and Hedge Funds, Institutional Investors are trying to capture alpha while focusing on absolute returns.
To succeed, Investment Managers with an Institutional client base will need to have expertise in emerging markets as well as may need to partner with external firms in order to gain access to Hedge Funds and Private Equity.