Thinking long term about diversification 

Young Asian businesswoman analyzing and checking stock market over smartphone

Pragmatic risk management requires a wider perspective.

Investors naturally want to maximize their returns, but it’s important to consider the level of risk they are willing to take to get there. Strong short-term performance may distract from vulnerabilities that could damage returns over time.

Keeping the correct diversification timeline

At times when all returns seem to be coming from one place, whether that’s a specific region or even a small group of stocks, it is easy to lose sight of the value of holding a diversified range of assets.

Through these periods, it’s important to keep the correct timeline in mind. One asset class may dominate the contribution to performance, but over the longer term, the returns picture may evolve quite significantly.

Seeing the full picture in private credit

Some have expressed concerns that the boom in private credit is pushing the space towards bubble territory – indeed, private equity business in the space is now twice the size it was in 2012.

However, this fails to take into account the drop in bank lending over the same period. Regulatory hurdles such as Basel III are making it much more difficult for banks to lend. These measures are forcing banks back, leading private lenders to step in to fill the void they have left.

Outsourced vs. in-house investments

There is no single ‘right’ way to access asset classes. For some areas of the market, it will make sense for investors to build out their in-house investment management capabilities, while in others it makes sense to outsource.

It’s critical that investors question the degree to which an asset class sits within their sphere of competence. From this starting point, they can determine the most effective way forward – whether that’s hiring in talent or finding a partner that can execute on their behalf.

Large asset owner barometer 2024

Asset owners with over $2 trillion in assets under ownership share insights on their current positioning, plans and principal concerns on three key areas of focus.
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