Risk Monitor

How risk leaders navigate the risk-return conundrum

Our new RiskMonitor study explores investor attitudes toward risk, portfolio construction and asset allocation - and finds that a group of Risk Leaders have the edge in risk management.

Risk Monitor

Risk culture risk leaders have built strong risk cultures

A significantly higher percentage of Risk Leaders say the senior management within their organization is dedicated to ensuring and supporting sound risk management practices. This link between leadership and risk culture is among the biggest differences that Risk Leaders exhibit. The tone from the top is critical for the effective management of risk.

Investment process risk leaders make risk management an integral part of their investment process

One of the most significant findings of our research is that Risk Leaders conduct independent risk analysis and spend more time on risk management strategies. Critically, Risk Leaders are more confident in their ability to achieve their return expectations for the year.

Risk leaders have the edge in many investment areas

  • Risk Leaders
  • Others
  • Senior management dedicated to sound risk management practices
  • Conduct independent risk analysis
  • Spend more time on risk management strategies
  • Incentivize risk management
  • Invest in alternatives for diversification

A higher number of Risk Leaders believe actively managed portfolios are worth the cost. In addition, they are more likely to think there is alpha to be found in today’s markets.

More faith in active management

  • Risk Leaders
  • Others

Actively managed portfolios are worth the cost.

There is little alpha to be found in today's competitive markets.

More confident and proactive

With a more confident outlook, Risk Leaders feel more prepared to deal with investment risks.

  • Well prepared
  • Moderately prepared
  • Not prepared
  • 72%20%8%
  • 57%28%15%

Tail risk Risk leaders have implemented appropriate downside protection for the next tail-risk event

More recent events have also had an impact on Risk Leaders’ attitude to risk management. More than three-fifths of them say the political upheavals experienced over the past year have led to an increased focus on risk management within their institution.

Changes prompted by political events

  • Risk Leaders
  • Others
  • My organization has changed our approach to risk management since the financial crisis to protect against future tail risk events.
  • 57%
  • 47%
  • Recent political events in the last 12 months have led to an increased focus on overall risk management in my institution.
  • 63%
  • 58%

Risk Leaders’ more proactive and holistic views on risk also translate into the realm of alternative assets. Overall they say they have a better understanding of these non-traditional asset classes. A crucial element to taking full advantage of alternative assets is understanding their risk profile and how this can be managed. Risk Leaders feel they are better equipped to tackle the risks alternatives present.

Understanding of alternatives more prevalent among risk leaders

  • Risk Leaders
  • Others
  • 75%
  • Alternative investments fulfill the role we need them to in our portfolio.
  • 68%
  • 72%
  • I understand alternative investments well.
  • 64%
  • 54%
  • We are able to effectively measure the risks posed by alternative assets.
  • 53%

We surveyed 750+ institutional investors …

… and identified ~150 “Risk Leaders” with unique characteristics

  • Risk leaders represent a fifth of our sample of institutional investors.
  • Risk Leaders 20%
  • 80% Others

Risk leaders have key qualities in common

They make risk management an integral part of their investment processes

They have built a strong risk culture

They have implemented appropriate downside protection for the next tail-risk event

  • Risk Leaders
  • Others
  • Public pension25%20%
  • Insurance company21%24%
  • Private pension18%18%
  • Bank11%15%
  • Family office8%8%
  • Sovereign wealth fund6%4%
  • Corporation (nonfinancial)5%4%
  • Foundation3%3%
  • Endowment2%3%
  • Other1%1%

Risk Leaders tend to belong to larger organizations with higher levels of assets under management. More than two in five (43% compared to 36% of others) have $50 billion or more in AuM.

  • Less than USD 1 billion6%10%
  • USD 1 billion to USD 5 billion15%18%
  • USD 5 billion to USD 10 billion14%9%
  • USD 10 billion to USD 50 billion22%27%
  • USD 50 billion or more43%36%

About RiskMonitor

About RiskMonitor

The AllianzGI RiskMonitor assesses the impact of the current market environment on the sentiment, attitudes and behavior of institutional investors. In this report, we explore the qualities of a sub-group of investors that we call Risk Leaders. More adept at risk management, they set the standard for others to emulate.

This year’s study canvassed the views of more than 750 institutional investors across Asia Pacific, Europe and North America, representing over USD 34 trillion in assets under management.

Source: RiskMonitor 2017. We define Risk Leaders as those who responded “Agree” or “Strongly Agree” to the following questions: “Risk management is as an integral part of our investment process and actively addressed on a systematic, ongoing basis”, “My organization has a strong risk management culture”, and “I am confident that our portfolio has appropriate downside protection for the next tail event.” Our research shows that this group differs across a number of areas, pointing the way for best-practice approaches to risk management.

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The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

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