Investors feel they are ill-equipped to face an impending market downturn because they lack access to appropriate tools and solutions to deal with tail risk as well as changes to the risk management practices of their respective organizations.
According to a survey commissioned by Allianz Global Investors, only 51% of investors in Asia-Pacific (APAC) feel they have access to the appropriate tools or solutions to deal with tail risk in the event of a market downturn. Despite this relatively low number, it's still slightly higher than their global peers: global investors (49%), Taiwanese investors (47%), and Hong Kong investors (45%). Only Japanese investors say they are better prepared (at 58%).
The survey, conducted by Oxford Economics, incorporated 490 global institutions, representing 13 markets worldwide. They included public and private pension funds, insurers, sovereign wealth funds, banks, family offices, endowments and foundations, representing around US$15 trillion in assets under management. About 24% of the respondents were from the Asia-Pacific.
Only 68% of Hong Kong investors surveyed say their organizations have changed their approach to risk management since the financial crisis to protect against future tail risk. Nevertheless, this still represents a much higher change of practice than APAC investors (56%), global investors (47%), Japanese investors (48%) and Taiwanese investors (53%).
Investors also feel the risk environment is changing, with 64% of APAC investors and 59% of global investors saying the recently announced softer central bank monetary policy has introduced new levels of risk to the market.
On top of this, 87% of global investors and 90% of APAC investors say complacency about risk management has increased fully 10 years after the global financial crisis.
In APAC, 80% (slightly highly than 79% globally) said they were most worried by monetary policy – with Hong Kong and Japan reaching 88% and 84% respectively – 77% by market volatility (while it’s 84% for Japan), and 76% by inflation (which is quite aligned with global data at 75%, with the exception of Hong Kong, which has 85% of respondents showing concern).
About 55% of investors in APAC said they thought active management was the best investment option when the underlying components of markets show little correlation. Exactly 70% of respondents said they thought active managers were best placed to capitalize on the investment opportunities presented by digital transformation.
Investors in APAC also expressed a clear preference for long-term relationships with firms that understand their business goals and challenges (40%), and have specialist expertise in a particular asset class or strategy (37%).
The results vary in different locations. For example, 70% of Taiwan investors rate performance as the most important consideration, while performance and managers’ understanding of their business objectives and challenges are viewed as top priorities for Hong Kong investors (50%), followed by brand reputation (43%).
Investors in Japan rank specialist expertise in a particular asset class or strategy (42%) as being more important than performance (40%) or their own business goals (24%).
“This report identifies how the active asset management industry in general should keep abreast of and address investors’ evolving challenges and expectations. For Asia-Pacific, the difference in the findings among different markets prove once again the importance of customized solutions supported by on-the-ground professionals who know the markets and clients well,” says Desmond Ng, head of Asia-Pacific, Allianz Global Investors.
“Only active managers are able to deliver such solutions that are meaningful with value to clients, and hence stand out in the current environment,” he adds.