More than 60 senior executives at official institutions, defined as central banks, sovereign wealth funds and public pension reserve funds, were surveyed to explore the opportunities and challenges they face now and in the future.
Despite concerns about the challenges associated with new markets and asset types, 80% of those 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.
Among those surveyed, 73% say keeping up with the changes in regulation across global markets is a challenge and half 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 is a challenge to combine different risk measures across asset classes.
Almost four in 10 (38%) cite higher interest rates as a hurdle and a similar percentage refer to concerns about emerging market volatility. Just over one third (35%) are concerned about the cost of execution going up given collateral issues and additional reporting requirements and one-in-four say their biggest investment challenge is managing the complexity associated with alternative investments.
Overall, managing risk was the biggest challenge for survey respondents with market risk cited as a major concern for 86% and operational risk just behind at 73%. But confronting these risks requires greater investment - almost two thirds of respondents (60%) plan to increase investment in their risk management systems and processes over the next two years and 32% 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 is 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); and meeting the data challenge (50% say managing data is a challenge and integrating performance and risk analytics and protecting data security are paramount while in APAC, that percentage rose to 55%).