Chief Investment Officer - Risk Parity Investment Survey

Chief Investment Officer - For the world's largest asset owners

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For the world's largest asset owners

Risk Parity Investment Survey

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In the first independent survey of asset owners on risk parity investment strategies, aiCIO finds general acceptance with—and likely growth in—the idea of risk-weighted portfolios.

When aiCIO began its inaugural Risk Parity Survey, we were told at numerous junctures that the strategy hadn’t gained enough traction, or even investor comprehension, to merit such attention. Yet, more than 100 respondents later—controlling nearly $1 trillion dollars in capital—a different story emerged: Senior investment officials at large institutions comprehend, perhaps with a greater depth then previously thought, the strategy, and they have strong opinions on its potential benefits, its material risks, and its place in a portfolio.

That’s not all. The survey, conducted in July, shows a strategy in motion. While there are still overt critics and those who do not plan on allocating to risk parity products, more than half of respondents (51%) currently do, or are looking to, invest assets in this risk-weighted space. The momentum of such investment also trends clearly to one side: Of those currently with assets dedicated to risk parity strategies, none plans to reduce these holdings, and 45% plan on increasing their allocation in the coming 12 months.

Of course, as with any new investment philosophy, concerns exist regarding its implementation and long-term prospects. "Career risk," "correlations go[ing] to 1.0," "board education," "counterparty risk," and "leverage" were all cited as potential roadblocks to implementation, and some wondered whether the strategy was as much marketing as risk management. Additionally, there is no clear consensus on which asset class should fund risk parity strategies, as well as how to benchmark such strategies' relative success or failure. However, when looking into their crystal ball, senior investment officials predicted that risk parity performance would rival that of the alternative—heavy endowment model of investing—a strong recommendation for a strategy still in its (relative) infancy.

Our intention is to use this survey as a baseline for future research. Investment fads come and go—indeed, one of the more critical respondents predicted that risk parity would "leave the vernacular as quickly as [it] appeared"—but the general feedback was that this is more of an investment philosophy than an investment product. Philosophies, unlike many products, persist—and, thus, we are cautiously confident that further research will provide meaningful insight into institutional portfolios.