State Street Corporation (NYSE:STT) in partnership with the
Alternative Investment Management Association (AIMA), the global
representative of alternative investment managers, released a new
research report today that found that nearly half (48 percent) of
survey respondents say that decreased market liquidity is a secular
shift that is here to stay. Regulations stemming from the 2008
financial crisis, coupled with historically low interest rates and
slow rates of growth in the global economy, have constrained the
ability of many banks to perform their traditional roles as market
makers, which in turn has impacted broader market liquidity
conditions.
More than three-fifths of the survey respondents say current
market liquidity conditions have impacted their investment
management strategy, with nearly a third rating this impact as
significant, and are reassessing how they manage risk in their
investment portfolios. More broadly, they are adjusting to an
environment of less liquidity in which trading roles have been
transformed, new market entrants are emerging, and electronic
platforms and peer-to-peer lending are changing the way firms
transact their business.
“Increased regulation and the pressure to manage costs have
significantly changed market liquidity conditions,” says Lou
Maiuri, executive vice president and head of State Street’s Global
Exchange and Global Markets businesses. “The new liquidity paradigm
is causing many players in the investment industry to think again
about the fundamentals: what roles they play, where they invest,
and how they transact their business.”
While there is no one-size-fits all strategy for balancing risk
and return in the current market environment, investors and
managers are adapting to the new environment by focusing their
efforts in three areas:
- Rationalizing the risk: The
liquidity shift has serious ramifications for investors globally.
They are seeking to develop the right strategies and tools to help
them succeed in this complex new environment. This includes
improving the way they measure and report on liquidity risk, and
reassessing how they manage risk in their investment portfolios.
- 42% of all respondents say the changed
market conditions are making it more challenging than before to
report their liquidity position to their board or regulators
- 44% of respondents plan to invest to
improve their risk –reporting capabilities.
- Optimizing the portfolio:
Investors and managers are shifting their allocation strategies to
take account of new liquidity conditions. While more liquid fund
vehicles such as ETFs, UCITS funds and 40 Act funds have been
gaining ground, a holistic strategy that balances risk with return
across the whole portfolio is critical.
- 53% of asset managers and asset owners
are planning to add more liquid investments to maintain
exposures
- 44% are increasing the size of their
cash allocation against future liabilities or redemptions
- New rules, new tools: The new
market liquidity conditions are inspiring many players in the
investment industry to invest in new solutions and platforms such
as peer-to-peer lending that provide alternative sources of
liquidity.
- 49% say the role of non-bank
institutions as liquidity providers will grow and 42% say that this
growth will come from hedge funds
- Nearly half (47%) say hedge funds may
play an important role in providing liquidity in more volatile
markets
“With liquidity likely to remain top of mind for years to come,
now is the time to find the strategies, tools, and solutions that
will make a sustainable difference in the new investment climate,”
continued Maiuri.
“Hedge funds and other asset managers are responding to more
challenging market liquidity conditions by increasingly seeking out
new opportunities, including taking on a more prominent role as
market-makers, providing new sources of finance to the real
economy, and lending their support and expertise to improving
liquidity risk management,” added AIMA CEO Jack Inglis.
Click here to download a copy of State Street’s new research
report: “Let’s Talk Liquidity: Opportunities in a New Market
Environment.”
About the researchState Street commissioned Longitude
Research to conduct a global survey of 300 institutional asset
owners and managers in June and July 2016. Of this number, 150 were
asset owners, including pension funds, insurance companies and
endowments and foundations, and 150 were asset managers. These
included 50 hedge funds.
In total, the respondents represented 14 countries worldwide.
Approximately 35 percent of respondents were based in the Americas,
40 percent in Europe and 25 percent in Asia Pacific.
In addition to the survey, a range of in depth interviews were
conducted with select leaders across the industry.
About State Street CorporationState 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 $29 trillion in assets under custody and
administration and $2 trillion* in assets under management as of
September 30, 2016, State Street operates in more than 100
geographic markets worldwide, including the US, Canada, Europe, the
Middle East and Asia. For more information, visit State Street’s
website at www.statestreet.com
* Assets under management were $2.4 trillion as of September 30,
2016. AUM reflects approx. $40 billion (as of September 30, 2016)
with respect to which State Street Global Markets, LLC (SSGM)
serves as marketing agent; SSGM and State Street Global Advisors
are affiliated.
About AIMAAIMA, the Alternative Investment Management
Association, is the global representative of the alternative
investment industry, with more than 1,700 corporate members in over
50 countries. AIMA works closely with its members to provide
leadership in industry initiatives such as advocacy, policy and
regulatory engagement, educational programmes, and sound practice
guides. AIMA's core objective is to provide leadership to the
alternative investment industry, and to be its pre-eminent voice
globally. AIMA's team engages proactively and constructively in
shaping the financial markets reform debate, drawing upon the
expertise and diversity of its membership. AIMA is closely aligned
with and promotes the best interests of the alternative investment
industry in order to enhance the wider understanding of its
function. AIMA has cultivated positive and lasting relationships
with regulatory, fiscal and governmental authorities around the
world, whilst upholding engagement with the media in order to
achieve a more accurate and informed tone of news. AIMA is
committed to developing industry skills and education standards and
is a co-founder of the Chartered Alternative Investment Analyst
designation (CAIA) – the industry’s first and only specialised
educational standard for alternative investment specialists. AIMA
is governed by its Council (Board of Directors). For further
information, please visit AIMA’s website, www.aima.org.
Important Risk Information
Investing involves risk including the risk of loss or
principal.
Hedge funds (or other alternative investment funds) are designed
only for sophisticated investors who are able to bear the risk of
the loss of their entire investment. An investment in a hedge fund
should be viewed as illiquid and interests in hedge funds are
generally not readily marketable and are generally not
transferable. Investors should be prepared to bear the financial
risks of an investment in a hedge fund for an indefinite period of
time. An investment in a hedge fund is not intended to be a
complete investment program, but rather is intended for investment
as part of a diversified investment portfolio. Typically interests
in a hedge fund are not registered under the US Securities Act of
1933, as amended (“the Securities Act”), and the fund is not
registered as an investment company under the US Investment Company
Act of 1940, as amended (the “Investment Company Act”), and as
such, investors will not be afforded the protections of those laws
and regulations. A prospective investor should carefully review all
offering materials associated with a hedge fund, including the risk
factors, and should consult his or her own legal counsel and/or
financial advisor prior to considering an investment in a hedge
fund.
ETFs trade like stocks, are subject to investment risk,
fluctuate in market value and may trade at prices above or below
the ETF's net asset value. Brokerage commissions will reduce
returns. Index-based ETFs are passively managed and seek to track
an index of securities. Expenses may cause the ETF's returns to
deviate from the returns of the index.
The information provided does not constitute investment advice
and it should not be relied on as such. It should not be considered
a solicitation to buy or an offer to sell a security. It does not
take into account any investor’s particular investment objectives,
strategies, tax status or investment horizon. You should consult
your tax and financial advisor.
All material has been obtained from sources believed to be
reliable. There is no representation or warranty as to the accuracy
of the information and State Street shall have no liability for
decisions based on such information.
This document contains certain statements that may be deemed
forward-looking statements. Please note that any such statements
are not guarantees of any future performance and actual results or
developments may differ materially from those projected.
©2016 State Street Corporation- All Rights Reserved
CORP-2362Exp. Date: 11/30/17
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version on businesswire.com: http://www.businesswire.com/news/home/20161116005199/en/
State Street CorporationBrendan Paul,
617-662-22903Bpaul2@statestreet.com@StateStreet
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