Low interest rates and market volatility have many institutional investors changing their investment process and running to institutional custom solutions, according to new research from global analytics firm Cerulli Associates.
According to Cerulli, institutional custom solutions represent a substantial and growing market for asset managers, investment consultants and other financial firms. Assets stood at $1.1 trillion at the end of 2015, up from $506 billion in 2010. Assets are expected to grow 34.5% to $1.7 trillion by 2020, according to Cerulli.
Cerulli defines an institutional custom solution as any service devised to meet a specific client objective. Examples of custom solutions include multi-asset-class solutions, outsourced chief investment officers, liability-driven investing and pension risk transfer.
The main objective of multi-asset investing is to find a combination of different strategies that aim to lower asset volatility, capture investments with low or no correlation in returns, raise risk-adjusted returns, and protect an institution from debilitating large-scale losses.
“The demand of multi-asset-class solutions (MACS) strategies should continue to grow over time given the challenges institutional investors face,” Alexi Maravel, director at Cerulli said in a statement. “Our research found that the residual effects of persistent capital markets volatility are among the most significant reasons institutional investors seek custom solutions like MACS strategies.”
Cerulli finds that the number of institutional MACS added over the past year has risen exponentially, even if growth of client assets under management is more uneven lately.