Basic Assumptions Have Changed for Institutional Investors

Investment product providers and consumers face many challenges in today’s dynamic markets—but a surge in equity investment in the last year shows a clear willingness to accept risk in pursuit of reward. 

By John Manganaro | March 02, 2017
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Data provided by Willis Towers Watson (WTW) about the firm’s broad base of institutional investor clients offers a telling look at the wider marketplace in which defined contribution (DC) and defined benefit (DB) plans operate.

WTW serves pension funds, sovereign wealth funds, endowments, foundations and insurance companies. This group of large-scale investors, according to the firm, “increased their level of investment by almost 20% in 2016,” making new selections across different asset classes and “covering allocations made on both an advisory and delegated basis.”

Of course this represents a business win for WTW, but it is more important to observe how the client base itself has fully committed to preparing for the long-term financial future. There is a new understanding that “what worked for investors in the past is unlikely to work in the future,” suggests Brad Morrow, head of manager research in North America with Willis Towers Watson. “So our clients are looking for new, innovative ways to achieve better risk-adjusted returns.”

Morrow describes this as “finding ways to work their assets harder.”

“That is at the top of our clients’ agendas, be it through reducing costs, adding diversity or creating bespoke solutions in a much more thoughtful way than in the past.” Morrow says.

Data provided by the firm suggests equities remained the most popular asset class in 2016, with total equity investment made jumping 25% above what was measured in 2015. Private equity selections jumped 75%, Morrow notes, “but there was also a general increase across other equity strategies such as active global equities, emerging markets and equity smart beta.

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