17/06/2011
By Ilonka Oudenampsen
Interest rate risk is perceived as the highest risk in the next 12 months by nearly 70% of European institutional investors, while 61% sees sovereign debt as a huge or considerable risk, according to Allianz Global Investors’ RiskMonitor survey.
Although these fears would usually result into a shift into equities, concerns about overall market volatility and fear of a sharp drop in equity markets are also seen as major risks. Nearly half of respondents also consider tail risk as a major issue.
Elizabeth Corley, Chief Executive Officer at AllianzGI Europe Holding, said: “There is not only a multitude of types of risk facing institutional investors but investors also now perceive risk as a systemic issue because of the potential for increasing interrelation.”
She added that it is therefore interesting that there is so much confidence in the stability of the Euro, as 76% of those surveyed believed the Euro will survive under the current circumstances, whilst only 6% thought it would not.
A new framework for risk management is needed, as the financial crisis has changed the capital markets and the perception of risk. Chief Executive Officer of risklab, a subsidiary of AllianzGI, Reinhold Hafner, said: “We have to shift from a backward-looking static framework based on a normal distribution to a forward-looking dynamic risk management framework that explicitly accounts for empirical facts such as fat tails and correlation breakdowns. Active and dynamic risk management strategies that go beyond pure diversificiation will become ever more important.”
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