Sixty-nine per cent of global fund managers, including insurance asset managers, project a structural rotation toward European equities and thematic investing over the next 24 months, away from historically heavy US capital market concentrations, new research from Clearwater Analytics has revealed.
The survey of 250 asset management firms from across the US, Europe and the Asia-Pacific region, which included 50 insurance asset managers, said this was to shield capital against macroeconomic volatility and geopolitical instability.
Geopolitical volatility has also sparked a hedging super-cycle, according to the report. As the operational and macro landscape has grown fraught, driven by technological cyber risks and cross-border asset threats, global fund managers are increasing sophisticated derivative overlay and hedging. Over the past year, 55% have increased their internal usage of hedging mechanisms. Over the next 24 months, nearly four in five firms (79%) forecast further increased use of hedging strategies.
Keith Viverito, managing director EMEA at Clearwater Analytics, said: “What stands out in this data is how many firms are making similar moves. That’s worth watching, because a strategy the whole market adopts together behaves differently than one only a few firms hold. As portfolios grow more complex, managing alternatives and hedges in real time depends on trusting the data behind them. Whether that trust is earned or assumed is the question every firm making this move should be asking itself.”
To deliver more uncorrelated returns and dampen standard deviation across core portfolios, fund managers are also increasingly executing a structural rotation into alternative asset classes.
The data highlighted an overwhelming fund manager consensus: 90% predict that the inclusion of alternatives - specifically private equity, private credit, infrastructure, and hedge funds - within core strategies will increase over the next three years. This is shifting liquidity requirements across public and private asset classes, forcing managers to manage heightened redemption and underlying liquidity risks.
