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Institutional investor policy issues - the best white papers

Institutional Investors - what's on their minds?

What are the key investment policy issues currently occupying the minds of institutional investors? In the short-term, of course, it may be difficult to look beyond market volatility and the implications of BREXIT. But in terms of investment policy, a helpful new survey from Pioneer Investments identifies investors' top policy issues: capital protection, alpha generation, income generation, volatility mitigation, goal-oriented strategies and multi-asset solutions.

Here at Savvy Investor, we have direct insight into the types of research that institutional investors are most avidly reading. To the list above, we'd be inclined to add: factor investing/smart beta, return forecasting, long-term investing, big data and alternative assets (especially illiquid asset classes).

Below you'll find some of the best recent papers covering these topics. For anything else, you can search directly on the Savvy Investor site.


Professional Investor Views: Protection, Alpha, Multi Asset (Pioneer, June 2016)
This new paper summarizes the key takeaways from Pioneer Investment's most recent round of investor research. Capital preservation, income and alpha are among the key priorities for investors in the current though market environment. Strong interest for multi-asset solutions is also expressed by investors, who select these products because of the enhanced potential diversification and volatility mitigation they may provide.

A framework for institutional portfolio construction (Vanguard, 2016)
Typically, institutional investors around the world pursue one of four investment goals: absolute return, liability-driven investment, total return or principal protection. Generally, they choose from four different investment approaches: static tilts, traditional active management, market-capitalization exposures and alternative investments. Given the aforementioned potential goals and approaches, this paper considers which are the best for investors building their portfolio.

Expected Future Asset Class Returns for 2016-2020 (Robeco)
In this excellent 120 page document, Robeco present their forecasts for expected returns for major asset classes during 2016-2020. They also set out in detail the building blocks underlying these forecasts. They argue that longer-term forecasting is more reliable than short-term forecasting. Valuation corrections, for instance, are impossible to forecast on a three month horizon, but over a five-year period, some reversion to normal valuations is likely to occur. Furthermore, the impact of unexpected economic or political developments is more likely to even out, during a five year time frame. Robeco forecast five year global equity returns at 5.5%pa.

A Comprehensive Investment Framework for Goals-Based Wealth Management (EDHEC)
This paper develops a framework that can be used by financial advisors to allow individual investors to optimally allocate assets to categories of risks they face across all life stages and wealth segments so as to achieve personally meaningful financial goals. One key feature in developing the investment framework for goals-based wealth management is the introduction of systematic rule-based multi-period portfolio construction methodologies, which is a required element given that risks and goals typically persist across multiple time frames. This research was conducted with the support of Merrill Lynch Wealth Management as part of EDHEC-Risk Institute’s research chair on a "Risk Allocation Framework for Goal-Driven Investing Strategies".

The Free Lunch: Decoupling Diversification and Risk (Salient, Apr 2016)
The authors of this very interesting paper discuss why considering diversification and risk independently may help investors build more efficient portfolios. They argue that asset allocators should rethink the impact of low volatility diversifiers in higher risk portfolios. Some low vol asset classes (e.g. hedge funds) may primarily have a “de-risking” impact, but not a "diversifying" impact. The paper demonstrates that, perhaps counter-intuitively, high volatility diversifiers can sometimes be very effective, and allocators should consider these strategies.

Markets outlook post-BREXIT - the best papers on Savvy Investor (June 2016)
Following the UK's decision to leave the European Union, markets have fluctuated in turmoil and the pound has fallen to its lowest in over 30 years. What will the long-term impact be on the global economy, financial markets, legal frameworks and the UK financial services and pensions industries?

Why BREXIT may not happen (The Savvy Investor blog, June 2016)
The UK is facing an unprecedented political crisis. The June 23rd referendum vote ended with the majority of Brits voting to leave the European Union. Article 50 will need to be triggered by the new prime minister, kick-starting negotiations with the EU. But according to these recent articles on Savvy Investor, a Brexit from the EU is not at all guaranteed.

Smart Beta - Global Survey of Asset Owners (FTSE Russell, 2016)
FTSE Russell's 2016 smart beta survey documents the findings from interviewing over 250 asset owners around the world. This detailed 40-page paper reveals that factor investing is continuing to gain ground, with over 70% of asset owners surveyed currently implementing or evaluating such strategies. The survey explores investor perceptions of smart beta, including the rationale for using these strategies and the methods of evaluation. The study examines strategic versus tactical implementation of factor strategies, and discusses the evolving roles of external managers and consultants within the process.

Global Trends in Institutional ETF Adoption (Greenwich Associates, June 2016)
Institutional investors are major contributors to the gradual rise in global ETF demand. In 2015, ETFs attracted over $350 billion in new assets worldwide. In this 11-page paper, the authors examine how current ETF trends can be expected to impact demand in 2020. They use a growth model that estimates growth in ETF assets over the next five years. The model examines respondents' strategies for widening usage, boosting holding periods and adopting new products among both ETF non-ETF users.

Lower growth for longer? How to bridge the performance gap? (SSGA, 2016)
Several senior executives at 400 large institutional investors were interviewed for this study. The study authors sought to learn more about their asset allocation objectives and their framework and approach for measuring success, among other things. Given the likelihood of performance shortfalls and the present persistently low-return environment, investors were also asked how they were planning to fill the gap between stated aims and realized performance.