European institutional investors and money managers are slow to adopt cutting-edge investment techniques in risk management, portfolio construction, strategic allocation and performance measurement, according to a new survey by EDHEC Risk and Asset Management Research Centre.
Most respondents learned from post-2000 market crises and have taken advantage of absolute performance offerings to move beyond considering only volatility when gauging investment risk. Most respondents use value-at-risk and conditional value-at-risk; however, when calculating those indicators, 42% “assume the normality of returns, an assumption that, in the end, makes their calculations neither relevant nor realistic,” according to EDHEC’s news release accompanying the report.
The “greatest surprise” EDHEC found was that 42% of investors don’t consider liabilities when creating asset allocation strategies; of those that do, about half favor “simple solutions” such as cash-flow matching and LDI, according to the release.
“The results provide evidence that many institutions, rather than fully exploiting the improved techniques that research has made readily available to them, currently settle for the most straightforward,” according to EDHEC.
EDHEC surveyed 229 institutional investors and asset managers across Europe representing more than €10 trillion ($14.8 trillion) in assets under management.