Asset owners face the same risk level now as they had in the financial crisis, investment consultants say.
“I really hoped that following the credit crisis and negative experience that asset owners had during that period — and the talk that risk management had to become much more important to avoid these type of outcomes — that (risk) would be much more front and center when talking about asset allocations,” said Patrick Lighaam, managing director in Santa Monica, Calif.-based Wilshire Associates Inc.'s consulting unit.
“But it is not something, at least across the board, that we have seen,” Mr. Lighaam said. “There are some very small exceptions. But again mostly ... risk is the outcome rather than the input in the decision-making process.”
“In general (today) vs. 2008, institutional risk postures are similar,” said Christopher A. Moore, chief investment officer with Summit Strategies Group, St. Louis. “Immediately following 2008, we saw aggregate derisking ... selling higher-risk ... equity allocations for more diversifying assets.”
Since then, there have been “offsetting moves to stretch for return ... (with investors) creeping out the risk spectrum of increased allocations to illiquid assets, such as private equity. Net-net, in aggregate, I would say there are similar risk postures today” as 2008.
Asset owners should make risk a “primary input” of their decision-making on investment policy and asset allocation, a priority that has been elusive for many fiduciaries even almost a decade since the start of the financial crisis, said William F. Jarvis, executive director, Commonfund Institute, the education, research and investment consulting arm of Commonfund, both based in Wilton, Conn., echoing sentiments of other investment consultants.
“In 10 years-plus experience ... of reviewing investment policy statements ... they almost always were not specific about risk,” Mr. Jarvis said.