Official institutions to combat economic uncertainty
New research from State Street shows that organisations are increasing their focus on technology, governance and risk management to diversify investment portfolios in the face of economic uncertainty.
A survey of more than 100 central banks, sovereign wealth funds (SWFs) and governance pensions, found that 70 per cent were most impacted by potential interest rate increases.
In addition, 90 per cent of SWF and government pension fund respondents said that equity market correlation would have a moderate to severe impact on their investment strategy over the next three years.
As uncertainty increases, official institutions are diversifying their portfolios and viewing new asset classes and markets. The alternative investment market is a notably popular option for investment, with 68 per cent of SWFs and government pension funds surveyed looking to increase allocation to commodities. From this, 88 per cent of government pensions surveyed were looking to allocate to real estate in the hope of beating equity markets through high returns.
"A volatile investment environment calls for organisational agility and official institutions are learning to adapt and become more agile," State Street's Global Services and Global Markets Asia Pacific senior managing director and head of sector solutions, Kevin Wong, said.
"They demand strong, flexible investment teams supported by a nimble operating model that help them identify opportunities, manage risk exposure, and take corrective action."
The State Street data also shows that Asia remains the most attractive region for investment, despite weakened growth in China. Close to 90 per cent of Asia-Pacific respondents and 63 per cent of institutions from other regions are planning to increase investment there.
In order to remain competitive, Wong said that institutions needed to hone skills including risk management approaches, improvements in governance structure and talent development programs.
"The extent to which SWFs and central banks are changing their approaches is sure to differ as a result of their different mandates, objectives, and circumstances," he said.
"Above all, they must be able to adapt to the unpredictable market environment to ensure long-term success."
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