Is this investment strategy a secular shift in the way capital pools should be managed—or is it a marketing gimmick?
This, perhaps, is the most interesting question surrounding risk parity investing today. aiCIO took a larger look at this question in the October issue of the magazine (to read it—and about an intriguing dive into the nether-regions of Wikipedia—click here) but, below, we look at the hard data. How are today’s asset owners use, think about, and act on risk parity investing?
First, a warning: the secular shift versus gimmick debate won’t be solved here. If anything, it will become more confused. Comparing year-over-year results of the aiCIO Risk Parity Investment Survey—the only one of its kind polling current, potential, and non-users of risk parity products—shows that the battle lines are hardening over whether risk parity belongs in an institutional portfolio. While a slightly larger percentage of polled asset owners (26.2% v. 25.3%) said they have already allocated to risk parity products compared with a year ago, a slightly smaller percentage (20.5% v. 25.3%) are only considering its usage. Overall, the number not using or considering the strategy rose from 49.4% to 53.3%. Separately, 31% suggested that risk parity would outperform either an endowment-style or 60/40 portfolio over the next five years, risk-adjusted—down slightly from 38% in 2011, largely at the expense of the endowment model. Overall, our poll suggests a similar landscape to the contemporary Presidential election: attitudes stubbornly split down the middle, with battle lines hardening.
Perhaps the only thing certain from these results is the remaining uncertainty over whether we are seeing a secular shift in the way assets are managed. If nearly 50% of asset owners are using or considering the using a certain strategy, it could hardly be called a gimmick—unless you hold the view that 50% of all large institutional investors have been deceived by clever marketing and overtures from the likes of the world’s largest asset management firms. But read the rest of the results, and decide for yourself.
METHODOLOGY: The aiCIO Survey of Geography and Asset Allocation Series: 2012 Risk Parity Edition was conducted from September 4 until September 24, 2012, and asked pensions, endowments & foundations, insurance funds, healthcare organizations, and sovereign funds about their practices and views on risk parity investment strategies. Of all responses, 115 American and 29 non-American funds were identified as qualifying by being from (a) a senior investment official at (b) a qualified fund. Duplicate responses from the same fund were counted as only one response. For more information, contact firstname.lastname@example.org.