Money managers are working hard to differentiate themselves in what has become a crowded market for multiasset strategies and offerings.
Institutional assets under management tracked in eVestment LLC's global balanced/tactical asset allocation universe hit $813 billion as of Dec. 31, flat for the year but up almost 20% from Dec. 31, 2015.
And it remains a popular asset class — institutional net inflows in the three months ended Dec. 31 totaled $2.8 billion, showed the data.
The market cycle is providing one opportunity for managers to differentiate themselves.
"I think what (clients) are concerned about is what happens to equity markets, and what will therefore happen to their multiasset holding," said Sara Rejal, global head of liquid diversifying strategies at Willis Towers Watson PLC in London.
Ms. Rejal said the firm in recent years has been calling for recognition of the amount of equity risk in portfolios — not necessarily from equities themselves, but from other exposures that carry equity-like risk.
"We were really concerned (we were) seeing growth but not any innovation from the managers" in terms of their multiasset and diversified growth fund offerings, she said. Ms. Rejal said that also led to questions over why clients needed a multiasset portfolio, when all they seemed to be getting was equity-like exposure.
"We were hoping two years on we would see some innovation — but we're quite disappointed we haven't seen that," she said.
But some money managers have recognized the need to diversify the risk in their portfolios, differentiating by splitting out various risk factors that they are exposed to — something that is all the more important as market volatility makes a comeback.
"We have seen investors ... really looking to diversify away from equity and bond risk," said Ilya Figelman, Boston-based senior vice president and director, multiasset strategies at Acadian Asset Management LLC. "Even though asset allocation has become more sophisticated," moving away from the traditional 60% equities, 40% bonds balanced portfolio that was popular for decades, "if you decompose the risk, a lot comes from equity beta and some from bonds … that's been actually really good for investors until February this year — having a lot of equity and bond beta has been a tremendous tailwind," he said.
However, "this mentality has started to change with the February market turbulence," as inflation concerns started to bite, interest rates began to increase and central banks indicated monetary policy was about to get a whole lot tighter, he said.
Acadian, which launched its first composite strategy in November, invests in 100 return-driving factors across five sectors — equities, bonds, foreign exchange, commodities and volatility. "We have a to-do list because we're systematic. We are able to combine more than 100 ideas — those are uncorrelated on average and, more importantly, are uncorrelated in periods of market stress," Mr. Figelman added. Acadian's Multi-Asset Absolute Return Strategy has $25 million in assets under management.