Citi Survey: Risk Premia Strategies Remain at Forefront of Investors' Agendas

May 12 2016 | 9:19pm ET

A new survey by Citi Prime Finance’s cap intro team reveals a growing allocation to hedge funds among institutional investors, and an increasing interest in risk-factor-based investing. 

More than 80% of the respondents are currently investing in, or looking to invest in, risk premia and smart beta solutions, according to the data, while nearly 70% said they prefer to do so via hedge fund vehicles.

The survey shows that such strategies, typically defined as those aimed at capturing risk-adjusted returns and improving portfolio diversification, remain at the forefront of investors’ agendas, Citi said on Thursday. 

Within risk premia strategies, the main drivers are volatility mitigation (46% of respondents) followed by return optimization (36% of respondents).

According to research conducted by Citi, AUM in smart beta and risk premia funds are projected to rise from $265 billion in 2014 to $1.2 trillion by the end of 2019 - making this the fastest growing product set in the asset management industry.

Citi analysts have also noted a strong interest in smart beta ETFs, with 45 new products launched in 2015, including 19 “multi-factor” products.

Respondents to Citi’s survey also revealed long-term confidence in hedge funds, a welcome respite from the negative press received by the industry over the past several months. 63% have more than $1 billion allocated to hedge funds, with half exceeding $2 billion.

Meanwhile, a majority (53%) of asset allocators stated they were planning on increasing their exposure to hedge funds over the next 3 years – with macro, equity long/short and CTAs being the preferred investment strategies – while 35% will maintain their current hedge fund allocation.

Only 15% said they plan to decrease the size of hedge fund investments.

“Hedge funds represent a third of profits generated by the asset management industry, and these findings confirm the importance of the sector to institutional investors,” commented Daniel Caplan, Citi's head of investor services sales for EMEA, in a statement. “We expect hedge funds to play an increasingly important role in providing diversification through risk-aligned strategies.”

Citi’s findings were based on a survey of investors and intermediaries, primarily institutional, representing close to $1 trillion of combined assets under management.

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