A survey of nearly 400 institutional investors worldwide has found that two major concerns for investors are rising interest rates and tail risks, as an era of very loose monetary policy appears to be drawing towards an end.
The survey, carried out for Allianz Global Investors, found a quarter of investors see interest rate rises as a great risk, with a further 31% seeing it as a considerable risk. And 20% see tail risk as a great risk, while 39% see it as considerable. Fifty nine percent of investors think that loose monetary policies from central banks have boosted short-term growth, while 57% expect to see an increase in inflation and 68% believe that there are abnormal price distortions in the fixed income market.
On equity risk, the survey found that 60% of investors expect it to pay off over the next three years, and over 90% expect to see positive returns over that period, with the average expected return from equities being 6%. Allianz Global Investors chief executive officer, Elizabeth Corley, said: “Like the investors surveyed, we expect monetary policy to be accommodative for quite some time. Nevertheless, respondents are understandably already preparing for a world where interest rates increase from their historic lows. Bond holders are rightly concerned about capital losses when rates start to rise again as well as the inability to generate positive returns in the meantime.” AllianzGI head of global solutions, Arun Ratra, commented: “We clearly see demand for holistic advice and solutions that range from managing the liability side, to regulatory risk reporting. For asset managers, future business success will largely depend on their ability to help clients in making capital market risk work for them in a smart way while being mindful of their respective regulatory constraints.”