Asset Managers Find Success in Customization

The financial crisis taught institutional investors many tough lessons, says Alexi Maravel, associate director at Cerulli Associates, including the importance of non-correlated assets in periods of market stress.

Maravel says new research from the financial analytics firm suggests that capturing low-correlated and non-correlated asset classes is one of the primary tools large institutional investors are seeking to achieve volatility mitigation. Diversifying sources of income is equally of interest, Cerulli says, if not more critical. The upshot for financial services and insurance providers is that insurance asset managers are gaining market traction in the asset management industry by meeting these demands through the creation of customized investment strategies.

Further, product development among leading investment managers appears to be heavily concentrated in the areas of alternative investments and multi-asset class funds, Cerulli says. Researchers found more than half (53%) of fund shops surveyed are actively developing new alternative and low-correlation investment products, with an additional 38% considering development.” New multi-asset class products are in development at 41% of investment shops, and an additional 24% are considering the development of new offerings in the space.

“Many leading third-party insurance asset managers are devising ways to make these investments more palatable, given their regulatory and risk constraints,” Maravel explains. “Those managers making headway in this space can both illustrate the value of nontraditional investments … and develop risk-based-capital-friendly solutions to meet their needs.”

Maravel says the third quarter 2014 issue of “The Cerulli Edge – Institutional Edition” examines the unique challenges of achieving low-correlation portfolios in the modern era of global market connectivity. One of the upshots of the research, he explains, is that Cerulli believes it is in asset managers’ best interest to work closely with insurance providers on asset-allocation strategy development.

In addition, several institutional asset managers told Cerulli they are working to have more in-depth conversations with clients on the broad topic of asset allocation, and more specific talks on managing risk-factor exposures. These talks can be a big value-add for institutional asset managers and investment consultants, the firm explains.

“As many multi-asset-class asset allocation solutions are either absolute return or completely unconstrained, insurers are considering employing these [customized] strategies for reducing duration exposure,” Maravel says.