Guest columnist firm Tesseract looks at mainstream asset allocation and its various risks.
Risk aversion is a foundational consideration in finance. Oddly, the examples usually given to explain it sound a bit like incidents from an old game show with Monty Hall.
Eighty-nine percent of the respondents in a newly released Natixis survey of institutions said they expect they will be able to meet their future obligations. But they aren't as optimistic about the fate of individuals in their own countries who are now trying to save for retirement.
Earlier scholarship, largely devoted to the U.S. equities context, has indicated that well-known predictors don't predict well in out-of-sample contexts. But by combining fifteen factors, and by moving the scene of their study to Australian, four scholars have obtained a more upbeat result.
The obvious reason for the allocation preferences of healthcare endowments is that they believe they need to remain very liquid. Jarvis, in this white paper, points out that the liquidity preference comes at a cost in performance.
Acceptance of the higher levels of volatility as a fact of life means that careful ongoing attention to risk has become the means of operations. In the United States specifically, 31 percent of institutions say that they monitor their risk budget daily to keep the overall amount of risk in the portfolio under check: more than half (53 percent) say that they do such monitoring on a weekly or monthly basis.
In the years before the world financial crisis, an endowment oriented model was gaining some ground [in the family-office world] following on the example of Yale University and its long-time CIO, David Swenson. But, frankly, there has been some questioning of that as of late.
It is good that the stuffy old healthcare organizational folks stuck with fixed income investments!, because those investments did better than any other asset class as a component of their FY2011 returns. Fixed income returned 5.4 percent. The more exciting field of international equities was the big loser, with a -10.9 percent return.
The reason for the increased interest in alternatives, McKinsey says, isn’t that the alternatives’ managers are slashing the price of their services. It is, rather, a discontent with the return to be gained from traditional investment. “Even with downward pressure likely over the next few years, revenue yields for institutional alternative products should remain well above the 35 bps average earned on today’s traditional institutional products.”
By the end of May the spread between German and Spanish bond yields was extraordinary. Spanish 10-year bonds were yielding 6.5 percent, German bonds only 1.347 percent. What Spain would have to do was becoming obvious to everyone by then, though it took Spain until well into June to do it, finally requesting and obtaining as Mathema puts it “a financial lifeline of up to €100 billion to shore up its troubled banking system” from the EU.
Institutions aren’t to be rushed into committing to a hedge fund. The process can take more than a year. Preqin asked institutions: once a fund has caught their attention, specifically once they have first seen a fund proposal, how much time typically passes before they actually make an investment, if they do?