Chief Investment Officer - Risk Parity Investment Survey 2012

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 2012

Cover

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

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 surveys@assetinternational.com.

Table of Contents

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RISK PARITY INVESTMENT SURVEY
  • Introduction and Methodology
RESPONDENT PROFILE
  • Asset Owner Type
  • Asset sizes
  • Percentage of respondents who are familiar with the concept of risk parity.
RISK PARITY USAGE
  • In what ways do or would you consider risk parity usage?
  • Do you currently have an allocation to risk parity products?
  • What are your risk parity allocation plans for the next 12 months?
  • What percentage of your portfolio will you allocate to risk parity?
  • What ways do you consider bucketing your risk parity exposure?
  • Out of which bucket(s) have you/will you fund a risk parity strategy?
  • Percentage of respondents who apply the idea of risk-weighted asset allocation to their portfolio as a whole.
  • How do you or would you benchmark risk parity strategies?
RISK PARITY CONCERNS AND OUTLOOK
  • How concerned are you about the following issues, if at all?
  • What strategy do you believe will perform the best over the next ten years, measured by risk-adjusted returns to the 60/40 portfolio risk?
NON-US RESPONDENTS
  • Do you currently have an allocation to risk parity products?
  • What percentage of your portfolio will you allocate to risk parity?
  • What are your risk parity plans for the next 12 months?
SEE ALL CHARTS