Industry Trends
Risk parity users by asset owner type
| 2015 | 2014 | CHANGE | ||
| • | Corporate pension fund | 37% | 26% | 44% |
| • | Public pension/sovereign wealth | 17% | 27% | -36% |
| • | Endowment/foundation | 10% | 15% | -31% |
| • | Other | 35% | 32% | 9% |
Risk parity users by asset size
| 2015 | 2014 | CHANGE | ||
| • | Less than $500 million | 2% | 17% | -86% |
| • | $500 million – $1 billion | 3% | 6% | -43% |
| • | $1 billion – $5 billion | 24% | 15% | 61% |
| • | $5 billion – $15 billion | 23% | 18% | 28% |
| • | More than $15 billion | 47% | 44% | 6% |
Risk parity users by location
| 2015 | 2014 | CHANGE | ||
| • | United States | 74% | 79% | -6% |
| • | Canada | 4% | 0% | n/a |
| • | Europe | 18% | 18% | -2% |
| • | Other | 5% | 3% | 57% |
In what ways do you consider using risk parity?
| 2015 | 2014 | CHANGE | |
| As a standalone risk parity allocation | 53% | 65% | -19% |
| As an asset allocation “pilot program” | 20% | 20% | -3% |
| In “innovation” or “alternatives” portfolios | 33% | 31% | 7% |
| As an allocation to real assets | 9% | 12% | -25% |
| As a GTAA or GAA strategy | 20% | 14% | 38% |
| As an equity substitute | 17% | 18% | -7% |
| As a funding vehicle for private equity strategies | 4% | 8% | -52% |
| As a cash overlay | 9% | 4% | 125% |
| As a core component of the total asset allocation | 38% | 55% | -31% |
| As part of custom target-date fund in a DC plan | 22% | 27% | -16% |
| As a standalone option in a DC plan | 8% | 20% | -61% |
What are your risk parity allocation plans for the next
12 months?
| 2015 | 2014 | CHANGE | ||
| • | Increase | 19% | 27% | -30% |
| • | Maintain | 66% | 67% | -2% |
| • | Reduce | 16% | 6% | 146% |
What percentage of your portfolio is allocated to risk parity?
ALL RESPONDENTS
| 2015 | 2014 | CHANGE | ||
| • | <5% | 66% | 49% | -5% |
| • | 5% – 10% | 15% | 27% | -44% |
| • | 10% – 25% | 8% | 14% | -43% |
| • | >25% | 11% | 10% | 6% |
< $1 BILLION
| 2015 | 2014 | CHANGE | ||
| • | <5% | 100% | 50% | 100% |
| • | 5% – 10% | 0% | 13% | -100% |
| • | 10% – 25% | 0% | 13% | -100% |
| • | >25% | 0% | 25% | -100% |
$1 BILLION – $5 BILLION
| 2015 | 2014 | CHANGE | ||
| • | <5% | 53% | 43% | 24% |
| • | 5% – 10% | 20% | 29% | -30% |
| • | 10% – 25% | 7% | 14% | -53% |
| • | >25% | 20% | 14% | 40% |
> $5 BILLION
| 2015 | 2014 | CHANGE | ||
| • | <5% | 65% | 50% | 31% |
| • | 5% – 10% | 16% | 29% | -44% |
| • | 10% – 25% | 8% | 15% | -44% |
| • | >25% | 10% | 6% | 73% |
How do you bucket your risk parity strategy?
ALL RESPONDENTS
| 2015 | 2014 | CHANGE | |
| Equities | 17% | 23% | -26% |
| Fixed income | 7% | 10% | -35% |
| Alternatives | 32% | 27% | 19% |
| Real assets | 7% | 6% | 9% |
| Dedicated* | 45% | 59% | -24% |
| Other | 17% | 12% | 37% |
< $1 BILLION
| 2015 | 2014 | CHANGE | |
| Equities | 50% | 75% | -33% |
| Fixed income | 50% | 38% | 33% |
| Alternatives | 0% | 25% | -100% |
| Real assets | 0% | 25% | -100% |
| Dedicated* | 50% | 13% | 300% |
| Other | 0% | 13% | -100% |
$1 BILLION – $5 BILLION
| 2015 | 2014 | CHANGE | |
| Equities | 21% | 0% | n/a |
| Fixed income | 7% | 0% | n/a |
| Alternatives | 36% | 14% | 150% |
| Real assets | 14% | 0% | n/a |
| Dedicated* | 43% | 71% | -40% |
| Other | 7% | 14% | -50% |
> $5 BILLION
| 2015 | 2014 | CHANGE | |
| Equities | 14% | 15% | -7% |
| Fixed income | 5% | 6% | -23% |
| Alternatives | 32% | 29% | 8% |
| Real assets | 5% | 3% | 57% |
| Dedicated* | 45% | 68% | -33% |
| Other | 20% | 12% | 73% |
*Dedicated risk parity/multi-asset bucket
Out of which bucket(s) do you fund risk parity?
ALL RESPONDENTS
| 2015 | 2014 | CHANGE | |
| Equities | 53% | 59% | -10% |
| Fixed income | 21% | 20% | 1% |
| Alternatives | 19% | 25% | -23% |
| Real assets | 2% | 10% | -83% |
| Dedicated* | 24% | 18% | 31% |
| Other | 16% | 12% | 27% |
< $1 BILLION
| 2015 | 2014 | CHANGE | |
| Equities | 100% | 63% | 60% |
| Fixed income | 50% | 13% | 300% |
| Alternatives | 0% | 25% | -100% |
| Real assets | 0% | 0% | n/a |
| Dedicated* | 0% | 13% | -100% |
| Other | 0% | 0% | n/a |
$1 BILLION – $5 BILLION
| 2015 | 2014 | CHANGE | |
| Equities | 64% | 57% | 13% |
| Fixed income | 14% | 29% | -50% |
| Alternatives | 21% | 14% | 50% |
| Real assets | 0% | 0% | n/a |
| Dedicated* | 14% | 0% | n/a |
| Other | 14% | 14% | 0% |
> $5 BILLION
| 2015 | 2014 | CHANGE | |
| Equities | 48% | 59% | -19% |
| Fixed income | 21% | 21% | 4% |
| Alternatives | 19% | 27% | -28% |
| Real assets | 2% | 15% | -84% |
| Dedicated* | 29% | 24% | 22% |
| Other | 17% | 15% | 13% |
*Dedicated risk parity/multi-asset bucket
How do you benchmark risk parity strategies?
How many risk parity vendors do you use?
ALL RESPONDENTS
| • | One | 45% |
| • | Two | 24% |
| • | Three | 22% |
| • | Four | 4% |
| • | Five | 4% |
| • | > Five | 2% |
| Average | 2.2 | |
< $1 BILLION
| • | One | 100% |
| • | Two | 0% |
| • | Three | 0% |
| • | Four | 0% |
| • | Five | 0% |
| • | > Five | 0% |
| Average | 1.0 | |
$1 BILLION – $5 BILLION
| • | One | 58% |
| • | Two | 8% |
| • | Three | 25% |
| • | Four | 8% |
| • | Five | 0% |
| • | > Five | 0% |
| Average | 1.8 | |
> $5 BILLION
| • | One | 38% |
| • | Two | 30% |
| • | Three | 22% |
| • | Four | 3% |
| • | Five | 5% |
| • | > Five | 3% |
| Average | 2.1 | |
Risk parity clients: average satisfaction levels with vendors
| (1=low; 5=high) | |
| Client service | 4.38 |
| Overall offering | 4.03 |
| Level of transparency for implementation/portfolio construction | 3.81 |
| Product performance since inception | 3.65 |
| Level of transparency for portfolio holdings | 3.44 |
| Product performance past year | 3.17 |
How concerned are you about the following issues, if at all?
| NOT AT ALL | A LITTLE | MODERATELY | QUITE | EXTREMELY | |
| The use of leverage/ counterparty risk |
13% | 24% | 33% | 19% | 11% |
| Performance | 13% | 23% | 23% | 21% | 21% |
| Peer risk | 42% | 20% | 25% | 12% | 0% |
| Assets without a risk premium/prohibited by IPS |
41% | 17% | 24% | 14% | 5% |
| Board and staff education |
22% | 25% | 24% | 17% | 12% |
| No explicit bucket to put it in |
62% | 15% | 13% | 7% | 3% |
| Not enough viable manager offerings |
47% | 18% | 22% | 12% | 2% |
| The passive approach some vendors take |
50% | 18% | 13% | 13% | 5% |
| Dynamic asset allocation policy is preferable |
36% | 19% | 25% | 12% | 8% |
| Timing | 27% | 13% | 30% | 17% | 13% |
| Transparency | 19% | 20% | 31% | 20% | 10% |
| How to benchmark | 28% | 20% | 27% | 20% | 5% |
Non-users: What concerns have led you to not allocate or not consider an allocation towards risk parity strategies?
| The use of leverage/counterparty risk | 42% |
| Board and staff education | 34% |
| Performance | 22% |
| Dynamic asset allocation policy is preferable | 22% |
| Timing (i.e. implementing a portfolio today given the valuation of bonds) | 20% |
| No explicit “bucket” to put it in | 19% |
| Assets without a risk premium/prohibited by IPS | 15% |
| Benchmarking | 15% |
| Transparency | 12% |
| The passive approach some vendors take | 7% |
| Peer risk | 6% |
| Not enough viable manager offerings | 4% |
| Other | 26% |