Worries over volatile geopolitics, including the tension surrounding North Korea, are making LPs act cautiously.
Geopolitics has become the number one concern for global institutional investors, according to a study conducted by Allianz Global Investors.
This is the first time since the annual study was launched in 2013 that geopolitics has come top of a list of risk factors for 755 investors accounting for $34.2 trillion of assets under management.
Almost half (44 percent) said geopolitics was a major risk to investment performance, followed by global economic slowdown (41 percent) and rising interest rates (32 percent).
“This study highlights the extent to which geopolitical uncertainty, including the ongoing tension in North Korea, which has only increased since we conducted our survey, is weighing on investment decisions,” said Neil Dwayne, global strategist at AllianzGI.
“Financial markets have never operated in a vacuum, but geopolitics now appears to be having a greater impact than at any point in recent memory on how global investors are behaving,” he added.
More than nine out of ten investors (91 percent) said event risk was a threat compared with 75 percent in 2016, while equity market risk weighed on the minds of 90 percent compared with 77 percent last year.
Nearly three out of five investors said recent political events have led to an increased emphasis on risk management within their organization. Two-thirds (65 percent) said actively managed investments played an important role in the portfolio in the current market environment.
More than half of investors (51 percent) said they had lowered their return expectations for the coming year despite strong recent performance by equity markets. Meanwhile, 53 percent said they would be willing to sacrifice upside potential in order to have tail-risk protection.
Institutions canvassed for the study included pension funds, foundations, endowments, sovereign wealth funds, family offices, banks and insurance companies.