Most Asian institutional investors perceived market volatility as the greatest risk to investments, although China market woes are now less of a concern to them when it comes to market volatility.

About 63% (50% globally) of Asian institutional investors perceive market volatility as the greatest risk to their investments this year, followed by interest rates (39%, and 38% globally) and geopolitical risk (34%, and 43% globally), according to Natixis Global Asset Management’s latest research.

“While risk factors change over time, and while institutions across the globe may have different appreciations of risk, one common challenge remains: deliver long-term results while navigating short-term market pressures,” says Fabrice Chemouny, executive vice president and global head of institutional sales at Natixis Global Asset Management – International Distribution.

Natixis surveyed 500 managers of public and corporate pensions, foundations, endowments, insurance funds and sovereign wealth funds in North America, Latin America, the United Kingdom, Continental Europe, Asia and the Middle East. Collectively, they manage US$15.5 trillion in assets.

The findings suggest that institutional investors in Asia differ from their global peers on how to manage investment risks this year. About 62% of institutional managers in Asia, like their global counterparts, feel they can handle risks related to investment performance in the next 12 months.

Given the prospects for greater volatility and persistent low interest rates, few institutions are relying on traditional portfolio strategies to meet their performance goals, according to Natixis.

Asian and global institutional investors alike are focusing on risk budgeting (82%, and 87% globally) and diversifying across sectors (81%, and 86% globally) as their top two strategies.

However, the survey reveals that 76% of institutional investors globally consider increasing alternative investments as a means to manage portfolio risk (68% in Asia); and 74% of Asian institutional investors (against 71% globally) believe the potential returns of illiquid alternatives make them worth investing in.

“When compared to their global peers, there are fewer Asian institutional investors who plan to increase their use of alternatives and smart beta to counter portfolio risk, yet 78% of them (69% globally) say they need to replace traditional diversification and portfolio construction techniques with new approaches. To do so, they’ll have to reassess risk; smartly manage it and reset investment priorities, but always with an eye on their long-term objectives.”

When reviewing their goals, 63% of investors in Asia (and 70% globally) believe their return expectations are achievable, but confidence may not be as strong as it seems on the surface.

One reason for setting expectations lower is the challenge of finding returns, with a relatively higher proportion of Asian institutional investors (86% versus 75% globally) believing that alpha will be harder to obtain as the market becomes more efficient.

While most global institutional investors are confident they will be able to meet their long-term liabilities, 62% think most of their peers will not. Compared with their global counterparts, a fairly high proportion of Asian institutional investors (78% versus 69% globally) say they need to replace traditional diversification and portfolio construction techniques with new approaches to achieve results.