Institutional investors around the world say market volatility is here to stay and that the old rules of investing no longer apply following the global financial crisis, according to a survey conducted by Natixis Global Asset Management.
In a survey of more than 482 institutional investors across the globe with a median asset level of $23 billion under management, Natixis found that 80 percent believe a volatile market is the new normal, with 84 percent saying volatility creates investment opportunities.
But 81 percent of institutional investors also said that it's difficult to mitigate the impact of volatility on their portfolios. And three out of four added that when the market is at its most volatile, it becomes difficult to adhere to asset allocation targets.
The best way to handle volatility, according to 91 percent of the survey's participants, is to increase allocations to non-correlated assets such as hedge funds, venture capital, or private equity.
The survey also revealed that institutional investors believe it's time to replace traditional diversification and portfolio construction techniques with new approaches to achieve results. Natixis, itself one of the 15 largest asset managers in the world based on assets under management, said it found that 65 percent of the survey's respondents said that static 60/40 portfolios are no longer the best way to pursue return and manage risk.
The drastic regulatory reforms enacted by lawmakers in the U.S. and Europe are an additional worry for institutional investors, Natixis said. In Europe, 85 percent of institutional investors believe the broad scope of the Alternative Investment Fund Managers Directive (AIFMD) will negatively impact fund managers.
Over the next year, meanwhile, investors also expect to face headwinds as they work to balance risk and return, Natixis added.
"Nearly three in 10 say one of their institution's top actions during the coming 12 months will be to pay more attention to correlations between asset classes," Natixis said in a statement. "Substantial numbers - approximately one in four each - also expect to use absolute strategies or ease holdings of safe, cash-like investments."