71% of this year’s survey respondents for the CREATE Report see volatility as an opportunity, but only 13% felt they had the skills to convert volatility into opportunity. Bear in mind, the respondents are institutional investors, plan sponsors and retail platforms. Why do these professional investors lack the skills and/or the confidence? We have an entire generation of investment professionals who have only ever managed money in a benchmark-driven world in a single asset class. When money moved away from balanced accounts run by commercial banks starting in the 1970’s, consultants stepped in to provide asset allocation and actuarial advice and to select asset managers. They believed in diversification and specialization and hired more managers and added more narrowly defined asset categories. Managers no longer moved between asset classes or styles, but instead became narrowly focused.
There still were some teams with management styles that didn’t follow benchmarks and had more risk relative to them. Many of these managers have done well in today’s volatile markets, given their ability to move out of harm’s way and seize opportunities when they occur.
We’ll explore other trends in asset management during volatile times in coming posts.