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The results of the CIO Sentiment Survey broken down into investment impact and themes

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Risk

In a marked shift from recent years, CIOs have boosted their allocations to risk assets with 38 per cent of respondents in the annual Top1000funds.com / Casey Quirk CIO Sentiment Survey saying they are taking on more risk. By way of comparison 28 per cent of respondents said they were taking on more risk in 2020.

Elsewhere, 40 per cent of survey respondents said they planned to increase their allocation to equity in 2021 compared to 28 per cent in 2020.

Within that equity mix, asset owners are investing in emerging market, global and regional equities – all of which saw sharp pandemic-induced outflows in 2020.

Positively, the shift to risk-on as equity markets have soared back to life has helped boost asset owners’ confidence in their ability to hit return targets alongside swelling funded levels. Around 100 of the largest US public pension plans have seen their aggregate funded level surge through 2020.

"33 per cent list market volatility as their most watched risk"

"38 per cent said they are taking on more risk compared to 28 per cent the year before"

biggest expected future portfolio risks

% of respondents, 2020 vs 2021

31%
33%
Market Volatility
8%
18%
Interest Rates
23%
10%
Liquidity
27%
10%
Macro Risk
3%
5%
Climate Risk
1%
3%
Credit Risk
5%
3%
Inflation
1%
3%
Regulatory Risk

key:

2020
2021

"33 per cent list market volatility as their most watched risk"

Plans taking more risks to achieve return targets

% of respondents, 2020 vs 2021

90%
10%
72%
28%
63%
38%
2019
2020
2021

key:

Yes
No

This year 60 per cent of respondents said they are confident they will meet return targets versus 44 per cent or respondents saying the same in the year prior.

Nevertheless, 2021 respondents acknowledge the perils inherent in the latest shift to risk-on with 33 per cent of survey respondents listing market volatility, an inevitable consequence of high asset prices, as their most-watched risk.

Next comes interest rate risk, with 18 per cent of respondents citing a spike in interest rates from today’s record lows as a key portfolio concern compared to 8 per cent listing the same concern last year.

Next comes interest rate risk, with 18 per cent of respondents citing a spike in interest rates from today’s record lows as a key portfolio concern compared to 8 per cent listing the same concern last year.

Sufficient liquidity on hand, either to pay pensions or take advantage of market opportunities, remains another key portfolio concern. While inflation and its recent surge with potentially damaging consequences for fixed income valuations, also remains on the watch list.

In perhaps one of the most surprising findings, the percentage of respondents citing climate change as their top risk in the next three years - above all other risks like volatility, rising interest rates or inflation - jumped from 3 per cent in 2020 to 5 per cent in 2021. The consequences of climate change, heightened by important signs of change in 2021 like US President Joe Biden re-joining the Paris Accord, is climbing up the risk agenda once again.

See how taking on more risk translated to investors’ asset allocation preferences

Plans taking more risks to achieve return targets

By asset class, % of respondents, 2020 vs. 2021

2021

2021

Equity
Fixed Income
Illiquid

key:

Increase
No change
Decrease