Elizabeth Skovira

Elizabeth-Skovira is a partner at McKinsey & Co. in the private capital and principal investing practice and co-leader of the North American institutional investor practice. Elizabeth provides advisory services to institutional investors (sovereign wealth funds, endowments, pension funds, family offices) and investment firms (private equity, real estate, infrastructure) on firm-level topics of investment strategy, portfolio and risk management, operations and governance, as well as on individual diligence transactions.

Earlier in her career, Elizabeth spent time at State Street and at Goldman Sachs. She earned her B.A. in China & Asia Pacific Studies, with focus on business, economics and Mandarin, from Cornell University.

CIO: What do you think will be the biggest innovation in the institutional asset allocation industry in the next 10 years?

Skovira: In 2024, it is difficult to talk about “innovation” without mention of advanced analytics and generative AI. As an elevator pitch, sure—generative AI will impact institutional asset allocation. But what does this really mean in practice?

First off, advanced analytics and generative AI will simply make more information more accessible to more investors. Using complex and disparate datasets to enhance investment decisionmaking used to be something reserved only for the most sophisticated (and well-resourced) investors—those with teams of data scientists to collect, annotate and interpret data. With gen-AI, more universal access to insights from data will surely raise the bar for “proprietary insight” among investors.

Within traditionally illiquid private markets, gen-AI stands to materially shift operational processes—faster, deeper research and more process efficiency. Over time (in part driven by efficiency, in part driven by regulatory pressures), private markets may look more like public markets. But will private market decisionmaking shift overnight as a result of gen-AI? Probably not. Dealmaking is still human-generated and human-negotiated, steeped in nuance and change management. The core alpha agents among private market investors won’t simply roboticize overnight.

CIO: What issues to you expect to dominate financial decisionmaking and the economy in the next 18 months to three years?

Skovira: Interest rates rule the world. The entirety of the financial markets sits atop the fundamental realities of the yield curve, and I expect this to dominate the trajectory of the economy over the next few years. In our increasingly polarized political environment, I’d anticipate more volatility in central bank decisionmaking as well.

A (largely) higher-for-longer monetary policy narrative will naturally trigger risk-off tendences. Institutional asset allocators won’t need to go as far out the risk curve to achieve yield, putting pressure on more traditionally “riskier” asset classes. Taken together with higher rates, private market illiquidity and an overhang of the denominator effect indicate that investors are apt to be in risk-off mode for some time (McKinsey estimates that an overallocation of just one percentage point can reduce planned commitments by as much as 10 to 12 percent per year for five years or more).

CIO: What macro themes will drive the most volatility for institutional investors over the short term? Over the next 10 years?

Skovira: We often focus on the tricky jumble of macro themes that are driving market volatility: rates and inflation, geopolitical tensions, political polarization, digital disruption, and a plethora of increasingly complex business risks such as cyber, supply chain and energy transition. Those themes are not going away anytime soon.

A less-talked-about source of volatility for institutional allocators will take the form of new competition for private markets exposure: private wealth and retail capital in private markets.

Since the advent of the private equity industry, institutional capital has been the core client for private market investment managers, and that is apt to change. The advent of mechanisms that will make it easier for private wealth and retail capital to allocate to private markets is poised to flood the market with new capital (and will entail extensive overhaul of GP operating models and structures). Big money will become small money, and institutional investors will need to find their way, as private markets’ exposure and alpha become more difficult as a result.