The results of the CIO Sentiment Survey broken down into investment impact and themes
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Equity risks are still undeniably the biggest concern for asset owners as half of the respondent marked it as the biggest threat to their portfolio in the year ahead. This is around valuation and concentration, but also liquidity, M.J. Murdock Charitable Trust CIO Elmer Huh says.
“A lot of folks like us have public equity because they don't want to park the liquidity asset into just cash or fixed income. They want higher yielding, so the valuation and the liquidity are kind of tied at the hip because of that,” he says.
“There's not a better alternative for higher-yielding, liquidity-holding [assets]. You can do high-yield [bonds], but that is somewhat highly correlated to equity nowadays.”
“Equity markets are a large slice of our portfolio, notwithstanding we try and diversify as much as we can, we still are quite exposed to equity markets,” QIC’s Allison Hill says.
Meanwhile, geopolitical risks have risen to the second place with conflicts in Iran still fresh on many CIOs’ memory, followed by private markets liquidity concerns.
Notably, there is a geographical divergence in terms of which risks asset owners think are the most tangible threats to their portfolio. While Asian Pacific respondents are more worried about equities risks (over 56 per cent of respondents in the region cited the concern), Europe, the Middle East and Africa asset owners are more focused on geopolitical risks – potentially due to proximity to the Ukraine and Iran wars.
Biggest risk to portfolio
% of respondents
Equity Risk
Geopolitical Risk
Private Markets Liquidity
Inflation Risk
Credit Risk
Interest Rate Risk
50%
12%
-
17
-
10%
Responding to geopolitical risk
% of respondents
No material change
Allocating less to US
Higher liquidity buffers
friendshoring
reducinf broad eM beta
Defence/energy security
In response to geopolitical risks, the most common course of action from investors is allocating less to the US (27 per cent), followed by higher liquidity buffer (12 per cent) and friendshoring (6 per cent).
More investors are planning to crank up risk (26 per cent) to achieve their investment objectives, as sentiment around it reached a five-year high.
“I can't speak for any other CIO, but I am willing to wager that the perspective or the sentiment that people expressed, and part and parcel of my own thinking, is that each of us has this view of you control what you can control, and the rest of what you can't control, you don’t worry about it,” Huh says.
“We're all in the business of trying to create alpha and manage the beta, but when the beta becomes unpredictable, that is where the uncertainty comes from.
“Right now, we're probably in an environment where geopolitics, fiscal, monetary and foreign policy have been repeatedly questioned in the public as being unpredictable… they have a ripple effect into [your risk perception], and your ability to make sense of anything becomes less and less affirming.”
Equity risk concern by region
% Citing Equity Risk
