Pension schemes’ risk appetite predicted to increase post-Covid

The risk appetite of pension schemes and other institutional investors is expected to increase over the next two years, according to research from Nickel Digital Asset Management.

It found that 25 per cent of professional investors believe risk appetite from pension schemes will increase ‘dramatically’, while 47 per cent expect there to be a slight rise.

Conversely, 9 per cent felt that risk appetite would decline over the next two years.

The most commonly cited reason as to why they believe institutional investors will be taking on more risk is that economic and fiscal policies from governments will ensure that riskier asset classes will remain attractive, with 62 per cent citing this as a factor.

Half (50 per cent) stated that one of the drivers would be strong economic growth as the world recovers from the Covid-19 pandemic, while a third (33 per cent) said low returns on bonds and cash mean investors will be prepared to take on more risk to meet their investment targets.

More than a quarter (29 per cent) cited strong transparency and regulation around cryptocurrencies and other digital assets as a driver to greater risk appetite, while 15 per cent said the same about risker asset classes.

“A combination of poor returns on bonds and cash, favourable economic and fiscal policies, and greater transparency and regulation in the investment management world is fuelling a growing appetite for risk amongst institutional investors,” commented Nickel co-founder and CEO, Anatoly Crachilov.

“However, to capitalise on this, fund managers focusing on riskier asset classes need to ensure the highest levels of risk management, transparency and reporting to help ensure that pension funds and other institutional investors remain within their risk parameters.

“In that context, we recommend that our clients limit their directional exposure to crypto assets to between 1-3 per cent of their overall portfolio. This allows to capture growth potential of the space, without keeping portfolio risks under control.”

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