Recalculating Routes: Official Institutions Seek Guidance, Precision and Safety in Search of New Investment Horizons

  Recalculating Routes: Official Institutions Seek Guidance, Precision and
  Safety in Search of New Investment Horizons

New Report from State Street Highlights New Risks and Opportunities as
Official Institutions Expand Investments Globally

Business Wire

BOSTON -- April 24, 2014

Official institutions are looking to new markets and a broader range of assets
as they search for greater returns, according to a new report by State Street
Corporation (NYSE: STT), “New Horizons for Official Institutions.” More than
sixty senior executives at official institutions, defined as central banks,
sovereign wealth funds (SWF) and public pension reserve funds, were surveyed
to explore the opportunities and challenges they face today and in the future.
In a fluid and volatile investment environment where regulatory sands are
continually shifting, official institutions are required to be more adaptable
than ever to new risks and new opportunities.

Despite concerns about the challenges associated with new markets and asset
types, 80 percent of official institutions surveyed expect to increase their
exposure to new markets, and, where they have the appropriate mandate, to
alternative assets such as hedge funds, private equity, real estate and
infrastructure. This move into new asset types is creating new levels of
portfolio complexity and within this uncharted territory are fresh challenges.
Among those surveyed:

  *73% say keeping up with the changes in regulation across global markets is
    a challenge
  *51% say the biggest challenge is correctly measuring and monitoring the
    amount of currency risk they are taking; this emerged as the biggest
    concern for APAC respondents with 44% saying it’s a challenge to combine
    different risk measures across asset classes
  *38% cite higher interest rates as a hurdle
  *37% are most concerned about emerging market volatility
  *35% are concerned about the cost of execution going up given collateral
    issues and additional reporting requirements
  *25% say their biggest investment challenge is managing the complexity
    associated with alternative investments

“Official institutions are at different stages in terms of how and where they
can invest, but it is clear that those institutions with a more flexible
investment mandate are recalculating their approach and looking to new markets
and asset classes as they search for yield,” said Joe Antonellis, vice
chairman of State Street. “The resulting portfolio diversity presents fresh
challenges, and official institutions will need the right teams and supporting
solutions to manage these strategies.”

Official institutions need to measure the moving targets of risk, complexity
and efficiency and be more adaptable than ever. Overall, managing risk was the
biggest challenge for survey respondents with market risk cited as a major
concern for 86 percent and operational risk just behind at 73 percent. But
confronting these risks requires greater investment. Almost two thirds of
respondents (60 percent) plan to increase investment in their risk management
systems and processes over the next two years and 32 percent of respondents
report difficulties hiring employees with risk, compliance and reporting
skills.

Improving operational efficiency is considered a significant challenge by 47%,
but focusing on lowering costs will help official institutions to become more
agile. Institutions can achieve operational efficiency by:

  *Reducing costs: the importance of reducing costs is rated the highest
    level of priority by survey respondents
  *Building capabilities with the right people: 32% say it’s difficult to
    recruit the talent they need for effective risk management; 29% say the
    need to develop talent is a challenge; 13% cite it as their most
    significant challenge
  *Meeting the data challenge: 50% say managing data is a challenge and that
    integrating performance and risk analytics and protecting data security
    are paramount. In APAC, that statistic rose to 55%

“To meet the challenges identified in this research, official institutions
must create an efficient, streamlined, yet resilient, operating model,” said
Henry Quek, senior managing director and head of official institutions for the
Asia-Pacific region at State Street. “This means reducing costs while not
compromising on standards, finding the right combination of people, process
and technology to support investment needs and operational challenges, and
using data to generate insights that support better-informed investment
decisions. Across all these areas, institutions must retain the necessary
rigor in their decision-making and remain truly accountable under ever-greater
scrutiny.”

To learn more about the report, “New Horizons for Official Institutions”
please click here.

About State Street Corporation

State Street Corporation (NYSE: STT) is one of the world's leading providers
of financial services to institutional investors including investment
servicing, investment management and investment research and trading. With
$27.4 trillion in assets under custody and administration and $2.3 trillion in
assets under management* at December 31, 2013, State Street operates in more
than 100 geographic markets worldwide, including the U.S., Canada, Europe, the
Middle East and Asia. For more information, visit State Street’s web site at
www.statestreet.com.

This AUM includes the assets of the SPDR Gold Trust (approx. $31 billion as of
December 31, 2013), for which State Street Global Markets, LLC, an affiliate
of State Street Global Advisors, serves as the marketing agent.

CORP-0996

Contact:

State Street Corporation
Anne McNally, +1 617-664-8576
aemcnally@statestreet.com
www.statestreet.com
@StateStreet
 
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