MSCI Survey Reveals Challenges to Long-Term Asset Allocation and Risk
Management in Real Estate Investments
NEW YORK -- February 25, 2014
MSCI Inc. (NYSE:MSCI), a leading provider of investment decision support tools
worldwide, has published the results of its bi-annual survey of asset
allocation practices among pension funds and sovereign wealth funds around the
world. The report, titled “Long-Run Investment Ambitions and Short-Run
Investment Processes,” finds long-term asset management challenges and
increasing risk management in real estate investments.
“The survey results show that the biggest challenge these asset owners face is
unifying long-term goals with the short-term nature of asset management. There
is no consensus in either the frequency with which they make strategic asset
allocation decisions or in the methods they use to do it. This can lead to
wide variation in investment outcomes,” said Neil Gilfedder, Managing Director
and Head of Analytic Applied Research at MSCI.
The survey also found that 95% of respondents plan to increase or maintain
allocations to alternative asset classes. “The reasons asset owners give for
holding alternatives are quite diverse,” Gilfedder continued. “When they
invest in real estate in particular, some asset owners are looking for
returns, others for income and still others for diversification of risk.
Without a clear understanding of how alternatives contribute to the risk and
return of an overall portfolio, they have no basis for setting expectations
with regard to investment outcomes.”
As part of the study there was an exploration of the steps being taken by
asset owners to strengthen risk management of real estate exposure. Based on
publicly available data of a 138 global asset owners, the research analyzed
the use of benchmarks and the monitoring of portfolio and asset-specific
risks. It found that although70% of asset owners have real estate policy
benchmarks, over 80% of them have some benchmark misalignment, often using
domestic benchmarks when investing in foreign markets.
“The findings reveal significant variations in the role of real estate in
investor portfolios, creating the potential for inaccurate views of actual
exposure,” said Peter Hobbs, Managing Director of Research for MSCI-IPD.
“Asset owners are working hard to overcome these challenges by better
integrating real estate with other asset classes and tightening up their risk
The survey was conducted in Q4 2013 with 80 global asset owners, whose assets
totaled close to $4 trillion. Interviews were carried out in person and
online. Respondents were CIOs, CROs, Portfolio Managers, Senior Risk Analysts
and Middle Office heads. These responses were supplemented by asset allocation
and real estate allocation data gathered from the annual reports and other
public documents of 138 global asset owners, representing $10.3 trillion in
MSCI Inc. is a leading provider of investment decision support tools to
investors globally, including asset managers, banks, hedge funds and pension
funds. MSCI products and services include indices, portfolio risk and
performance analytics, and governance tools.
The company’s flagship product offerings are: the MSCI indices with
approximately USD 8 trillion estimated to be benchmarked to them on a
worldwide basis^1; Barra multi-asset class factor models, portfolio risk and
performance analytics; RiskMetrics multi-asset class market and credit risk
analytics; IPD real estate information, indices and analytics; MSCI ESG
(environmental, social and governance) Research screening, analysis and
ratings; ISS corporate governance research, data and outsourced proxy voting
and reporting services; and FEA valuation models and risk management software
for the energy and commodities markets. MSCI is headquartered in New York,
with research and commercial offices around the world.
^1As of March 31, 2013, as reported on July 31, 2013 by eVestment, Lipper and
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