More risk needed

Research from State Street conducted with 400 pension professionals from around the world finds that 36 per cent believe the institutions they work for have funding issues that require them to seek higher risk strategies that offer potentially stronger returns.

State Street, which refers to these schemes as ‘Return Hunters’,  also highlights that 45% say the funds they work for are actively looking to de-risk, making them ‘Risk Cutters’. The remaining 19% are not looking to make any changes to the risk profile of their portfolios.

Other findings include:

• The majority of Return Hunters plan to boost exposure to funds of hedge funds (62%) and real estate (57%) over the next three years, and half of this group plan to increase allocation to private equity.
• The corresponding figures for Risk Cutters are 46%; 48% and 44% respectively. Both groups share the same appetite for increasing their exposure to infrastructure, with 43% each planning to do this over the next three years. 
• However, 49% of all respondents warn that real transparency of risks stemming from alternative assets has not been achieved yet. 
• Currently, just 43% of respondents working for Return Hunter schemes believe that their boards have a high level of understanding of risks facing the retirement funds they help manage, and just 29% of those working for Risk Cutter schemes think this. This helps explain why many pension schemes are planning to change the process for recruiting new board members.
• Over the next three years, 58% of pension professionals working for Return Hunter institutions believe that they will increase the headcount of their internal risk team, with 22% expecting it to fall. The corresponding figures for Risk Cutters are 44% and 28%.
• However, even as pension funds develop more sophisticated risk management capabilities, the support required from external partners is unlikely to diminish. More than a quarter (27%) of respondents plan to increase the number of external consultants they use over the next three years.