New Report from State Street Highlights New Risks and Opportunities as
Official Institutions Expand Investments Globally
BOSTON -- (Business Wire)
Official institutions are looking to new markets and a broader range of
assets as they search for greater returns, according to a new report by
State Street Corporation (NYSE: STT), “New Horizons for Official
Institutions.” More than sixty senior executives at official
institutions, defined as central banks, sovereign wealth funds (SWF) and
public pension reserve funds, were surveyed to explore the opportunities
and challenges they face today and in the future. In a fluid and
volatile investment environment where regulatory sands are continually
shifting, official institutions are required to be more adaptable than
ever to new risks and new opportunities.
Despite concerns about the challenges associated with new markets and
asset types, 80 percent of official institutions surveyed expect to
increase their exposure to new markets, and, where they have the
appropriate mandate, to alternative assets such as hedge funds, private
equity, real estate and infrastructure. This move into new asset types
is creating new levels of portfolio complexity and within this uncharted
territory are fresh challenges. Among those surveyed:
-
73% say keeping up with the changes in regulation across global
markets is a challenge
-
51% say the biggest challenge is correctly measuring and monitoring
the amount of currency risk they are taking; this emerged as the
biggest concern for APAC respondents with 44% saying it’s a challenge
to combine different risk measures across asset classes
-
38% cite higher interest rates as a hurdle
-
37% are most concerned about emerging market volatility
-
35% are concerned about the cost of execution going up given
collateral issues and additional reporting requirements
-
25% say their biggest investment challenge is managing the complexity
associated with alternative investments
“Official institutions are at different stages in terms of how and where
they can invest, but it is clear that those institutions with a more
flexible investment mandate are recalculating their approach and looking
to new markets and asset classes as they search for yield,” said Joe
Antonellis, vice chairman of State Street. “The resulting portfolio
diversity presents fresh challenges, and official institutions will need
the right teams and supporting solutions to manage these strategies.”
Official institutions need to measure the moving targets of risk,
complexity and efficiency and be more adaptable than ever. Overall,
managing risk was the biggest challenge for survey respondents with
market risk cited as a major concern for 86 percent and operational risk
just behind at 73 percent. But confronting these risks requires greater
investment. Almost two thirds of respondents (60 percent) plan to
increase investment in their risk management systems and processes over
the next two years and 32 percent of respondents report difficulties
hiring employees with risk, compliance and reporting skills.
Improving operational efficiency is considered a significant challenge
by 47%, but focusing on lowering costs will help official institutions
to become more agile. Institutions can achieve operational efficiency by:
- Reducing costs: the importance of reducing costs is rated the
highest level of priority by survey respondents
- Building capabilities with the right people: 32% say it’s
difficult to recruit the talent they need for effective risk
management; 29% say the need to develop talent is a challenge; 13%
cite it as their most significant challenge
- Meeting the data challenge: 50% say managing data is a
challenge and that integrating performance and risk analytics and
protecting data security are paramount. In APAC, that statistic rose
to 55%
“To meet the challenges identified in this research, official
institutions must create an efficient, streamlined, yet resilient,
operating model,” said Henry Quek, senior managing director and head of
official institutions for the Asia-Pacific region at State Street. “This
means reducing costs while not compromising on standards, finding the
right combination of people, process and technology to support
investment needs and operational challenges, and using data to generate
insights that support better-informed investment decisions. Across all
these areas, institutions must retain the necessary rigor in their
decision-making and remain truly accountable under ever-greater
scrutiny.”
To learn more about the report, “New Horizons for Official Institutions”
please click here.
About State Street Corporation
State Street Corporation (NYSE: STT) is one of the world's leading
providers of financial services to institutional investors including
investment servicing, investment management and investment research and
trading. With $27.4 trillion in assets under custody and administration
and $2.3 trillion in assets under management* at December 31, 2013,
State Street operates in more than 100 geographic markets worldwide,
including the U.S., Canada, Europe, the Middle East and Asia. For more
information, visit State Street’s web site at www.statestreet.com.
This AUM includes the assets of the SPDR Gold Trust (approx. $31 billion
as of December 31, 2013), for which State Street Global Markets, LLC, an
affiliate of State Street Global Advisors, serves as the marketing agent.
CORP-0996
Contacts:
State Street Corporation
Anne McNally, +1 617-664-8576
aemcnally@statestreet.com
www.statestreet.com
@StateStreet
Source: State Street Corporation
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