According to key findings from
While only a minority of respondents expect interest rates to rise towards their long-term historical averages before 2015, rising interest rates and tail risk are seen as most prevalent economic risk factors affecting investment performance over the next three years. A quarter of investors see rising interest rates as a "great risk" and further 31 per cent see this as a "considerable risk". Likewise, 20 per cent of respondents describe tail risk as great and an additional 39 per cent view it as considerable.
Investors also recognize the double-edged nature of loose monetary policy with 59 per cent of the respondents believing that the actions of central banks have stimulated short-term GDP growth while nearly as many see an increase in inflation (57 per cent), an increase in systemic risk (55 per cent) and a deterioration in the health of the retirement savings system (54 per cent) as side effects. Over two thirds of investors (68 per cent) believe that the monetary policies of developed nations in the past five years have increased the risk of abnormal price distortions in the fixed income market.
Investors re-discovering their appetite for risk-taking
In contrast to concerns about fixed income, investors' attitudes towards equity risk are somewhat more benign. For 60 per cent of the respondents, equity risk is seen as likely to pay off over the next three years (credit risk was mentioned by only 32 per cent). More than 90 per cent of investors surveyed expect global equities to generate positive returns over the next three years, with the average expected annual return coming out at 6 per cent.
Commenting on the findings,
Key US Findings
US investors are likely to see equity risk as a principal source of returns over the next three years. Compared to European investors, they are more likely to see credit risk as a source of return (40 percent vs. 28 percent). Interest rate risk is cited by 34 percent of US investors as a likely source of return in the years ahead, while less than 20 percent of respondents from
US investors are notably less likely to perceive financial risk to investment performance in all risk categories compared to investors in
Commenting on the US findings,
The cost of regulation
Although investors largely acknowledge the need for and benefits of greater regulation, 73 per cent of the survey respondents say that regulation comes with a price and just over half of respondents expected the policy climate to become less favourable in the next three years. Pessimism about the regulatory environment is particularly evident in the responses from
Of the regulatory and governance factors most likely to threaten investment performance, stricter government regulation and new capital controls and investment requirements were identified as risks over the next three years by 34 per cent and 31 per cent of respondents, respectively. Nearly 27 per cent are concerned about the impact of political and regulatory environment on their ability to meet investment targets.
Making risk work
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