Recalculating Routes: Official Institutions Seek Guidance, Precision and Safety in Search of New Investment Horizons
April 24 2014 - 9:30AM
Business Wire
New Report from State Street Highlights New Risks and
Opportunities as Official Institutions Expand Investments
Globally
Official institutions are looking to new markets and a broader
range of assets as they search for greater returns, according to a
new report by State Street Corporation (NYSE: STT), “New Horizons
for Official Institutions.” More than sixty senior executives at
official institutions, defined as central banks, sovereign wealth
funds (SWF) and public pension reserve funds, were surveyed to
explore the opportunities and challenges they face today and in the
future. In a fluid and volatile investment environment where
regulatory sands are continually shifting, official institutions
are required to be more adaptable than ever to new risks and new
opportunities.
Despite concerns about the challenges associated with new
markets and asset types, 80 percent of official institutions
surveyed expect to increase their exposure to new markets, and,
where they have the appropriate mandate, to alternative assets such
as hedge funds, private equity, real estate and infrastructure.
This move into new asset types is creating new levels of portfolio
complexity and within this uncharted territory are fresh
challenges. Among those surveyed:
- 73% say keeping up with the changes in
regulation across global markets is a challenge
- 51% say the biggest challenge is
correctly measuring and monitoring the amount of currency risk they
are taking; this emerged as the biggest concern for APAC
respondents with 44% saying it’s a challenge to combine different
risk measures across asset classes
- 38% cite higher interest rates as a
hurdle
- 37% are most concerned about emerging
market volatility
- 35% are concerned about the cost of
execution going up given collateral issues and additional reporting
requirements
- 25% say their biggest investment
challenge is managing the complexity associated with alternative
investments
“Official institutions are at different stages in terms of how
and where they can invest, but it is clear that those institutions
with a more flexible investment mandate are recalculating their
approach and looking to new markets and asset classes as they
search for yield,” said Joe Antonellis, vice chairman of State
Street. “The resulting portfolio diversity presents fresh
challenges, and official institutions will need the right teams and
supporting solutions to manage these strategies.”
Official institutions need to measure the moving targets of
risk, complexity and efficiency and be more adaptable than ever.
Overall, managing risk was the biggest challenge for survey
respondents with market risk cited as a major concern for 86
percent and operational risk just behind at 73 percent. But
confronting these risks requires greater investment. Almost two
thirds of respondents (60 percent) plan to increase investment in
their risk management systems and processes over the next two years
and 32 percent of respondents report difficulties hiring employees
with risk, compliance and reporting skills.
Improving operational efficiency is considered a significant
challenge by 47%, but focusing on lowering costs will help official
institutions to become more agile. Institutions can achieve
operational efficiency by:
- Reducing costs: the importance
of reducing costs is rated the highest level of priority by survey
respondents
- Building capabilities with the right
people: 32% say it’s difficult to recruit the talent they need
for effective risk management; 29% say the need to develop talent
is a challenge; 13% cite it as their most significant
challenge
- Meeting the data challenge: 50%
say managing data is a challenge and that integrating performance
and risk analytics and protecting data security are paramount. In
APAC, that statistic rose to 55%
“To meet the challenges identified in this research, official
institutions must create an efficient, streamlined, yet resilient,
operating model,” said Henry Quek, senior managing director and
head of official institutions for the Asia-Pacific region at State
Street. “This means reducing costs while not compromising on
standards, finding the right combination of people, process and
technology to support investment needs and operational challenges,
and using data to generate insights that support better-informed
investment decisions. Across all these areas, institutions must
retain the necessary rigor in their decision-making and remain
truly accountable under ever-greater scrutiny.”
To learn more about the report, “New Horizons for Official
Institutions” please click here.
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's
leading providers of financial services to institutional investors
including investment servicing, investment management and
investment research and trading. With $27.4 trillion in assets
under custody and administration and $2.3 trillion in assets under
management* at December 31, 2013, State Street operates in more
than 100 geographic markets worldwide, including the U.S., Canada,
Europe, the Middle East and Asia. For more information, visit State
Street’s web site at www.statestreet.com.
This AUM includes the assets of the SPDR Gold Trust (approx. $31
billion as of December 31, 2013), for which State Street Global
Markets, LLC, an affiliate of State Street Global Advisors, serves
as the marketing agent.
CORP-0996
State Street CorporationAnne McNally, +1
617-664-8576aemcnally@statestreet.comwww.statestreet.com@StateStreet
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