“The results of this survey reveal an important paradox: While almost two-thirds of institutional investors have become increasingly worried about tail-risk events since the financial crisis, a far smaller proportion are confident that they have access to the appropriate tools or solutions to deal with such events,” says Elizabeth Corley, AllianzGI CEO. “With the anticipation of more frequent tail-risk events, there is an important role for active investment managers in helping clients to understand, classify, measure and ultimately mitigate the downside impact from these outlier events as well as providing opportunities on the upside.”
Institutional investors told researchers that the most likely causes of upcoming tail-risk events are oil-price shocks (28 percent), sovereign default (24 percent), European politics (24 percent), new asset bubbles (24 percent) and a Eurozone recession (21 percent).
Risk concerns may also keep institutional investors from making greater allocations to alternative asset types. Though 73 percent of respondents say they already make broad use of alternatives, 39 percent of the investors said they would increase their alternative asset allocations if they were more confident of their ability to measure or manage risk.
In the survey, 735 institutional investors across North America, Europe and Asia-Pacific drawn from a variety of asset-owning institutions were interviewed survey during the first quarter of 2015.
The study also found that:
- Respondents favored European equities (61 percent) over U.S. equities (44 percent).
- Investors in the Americas and the Asia-Pacific were more likely to name oil price shocks as the cause of the next tail event than investors elsewhere.
- Investors in Europe and the Middle East were more likely to name new asset bubbles and sovereign default as the cause of the next tail event.
- Most institutional investors, 56 percent, believe tail-risk hedging strategies are too expensive.
- Thirty percent of respondents planned to buy European and/or U.S. equities in the next 12 months.
Among respondents, sovereign debt declined in favorability: 29 percent said they will sell sovereign debt and 31 percent believe that the asset class will fail to perform over the next year.