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

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Risk

2021’s roaring equity markets have boosted the funded status of many pension funds and reduced their need to add incremental risk with three quarters (76 per cent) of survey respondents saying they had no plans to increase risk to achieve their return target. Elsewhere, 63 per cent of 2022 respondents said they are confident of meeting their return target compared to 51 per cent in 2020.

Confident in meeting target return

% "yes" response, % of respondents, 2020-2022

51%
2020
60%
2021
63%
2022

taking more risks to achieve return targets

% of respondents, 2018-2022

17%
83%
2018
10%
90%
2019
28%
73%
2020
38%
62%
2021
24%
76%
2022

key:

Yes
No

However, asset owners will have to balance their decision to maintain or pare back on risk with notable signs of consistently high return targets. For another year running, the majority of 2022 respondents (68 per cent) said they have a return target of over 5 per cent in contrast to 2019 when only 31 per cent of respondents cited a return target of over 5 per cent. Back then, most respondents had a return target of between 3-5 per cent. Still, a third of 2022 respondents (more than in previous years) said they expected a lower return target for the portfolio in the coming years.

Whats your return target?

% of respondents

5%
27%
68%
% of respondents

key:

Greater than 5%
Between 3% - 5%
Less than 3%

In another theme, respondents highlighted their growing concern about current equity valuationsa and the need to de-risk following last year’s exceptional gains: over half of 2022 respondents cited equity risk as the biggest challenge to their portfolios compared to just over a third citing equity riskin 2021. Similarly, inflation is now firmly on the risk radar with 29 per cent of respondents citing inflation risk as a key risk in 2022 compared to just 3 per cent naming inflation risk in 2020. Today’s concerns contrast with last year when market volatility, given its tendency to accompany high valuations in equities and bonds, was the primary concern. Strategies to manage investment risk include investing in risk management tools, upgrading systems, integrating ESG and adding newhires, respondents said.

Whats the biggest risk to your portfolio in the year ahead?

% of respondents

55%
Equity Risk
29%
Inflation Risk
21%
Interest Rate Risk
12%
Other
7%
Credit Risk
7%
Pandemic / Other Global Disruption
5%
Liquidity Risk
2%
Sovereign Risk
2%
Leverage
0%
Participant Driven Risk Factors

“Portfolios have benefited from multiple years of strong market performance, but this has led to heightened concern for CIOs over rich equity valuations – and coupled with increasing inflation fears, they are revisiting allocations. The recent market correction may exacerbate planned shifts out of public equities and into private markets and more defensive strategies,” says Diane Cullen, a senior consultant at Casey Quirk based in Boston, US.