New Horizons for Official Institutions: Research Findings
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These findings are based on fieldwork conducted during January 2014 by FT Remark. In association with State Street, FT Remark surveyed 62 senior executives at official institutions – defined as central banks, sovereign wealth funds and public pension reserve funds – to explore the opportunities and challenges they face today and in the future.
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New Horizons for Official Institutions: Research Findings
- 1. OFFICIAL INSTITUTIONS New Horizons for Official Institutions an FT Remark and State Street Study Executive Summary April 2014 This presentation features data from the 2014 State Street Official Institutions Study conducted by FT Remark. CORP-0978
- 2. 2 OFFICIAL INSTITUTIONS State Street 2014 Official Institutions Study About the Research These findings are based on fieldwork conducted during January 2014 by FT Remark. In association with State Street, FT Remark surveyed 62 senior executives at official institutions – defined as central banks, sovereign wealth funds and public pension reserve funds – to explore the opportunities and challenges they face today and in the future. Additional interviews were conducted during February and March to gain deeper qualitative insight. 58% 34% 8% Respondents by Type Central Bank Sovereign Wealth Fund Public Pension Reserve Fund 45% 29% 26% Respondents by Region EMEA APAC Americas 42% 11% 47% Respondents by Role Investment Operations Combination of above CORP-0978
- 3. 3 OFFICIAL INSTITUTIONS State Street 2014 Official Institutions Study Top Priorities for Official Institutions 13% 15% 13% 21% 13% 25% 29% 31% 44% 47% 50% 65% Developing talent Supporting governance requirements Optimizing investment strategy Improving operational efficiency Managing data Managing risk Percentage who rate as significant challenge* Percentage who rate as No. 1 challenge *Multiple selections allowed. Source: State Street 2014 Official Institutions Study conducted by FT Remark Official institutions are balancing a diverse, complex set of challenges. CORP-0978
- 4. 4 OFFICIAL INSTITUTIONS State Street 2014 Official Institutions Study Managing Portfolio Complexity 73% Have difficulty keeping up with the changes in regulation across the global markets they invest in 51% Indicate that correctly measuring and monitoring the amount of currency risk they are taking is a challenge 38% Believe that adjusting to higher interest rates will be their single biggest investment strategy challenge over the next two years 35% Are concerned the cost of execution will go up given collateral issues and additional reporting requirements Official institutions are looking to new markets and types of investment to generate returns, creating new levels of portfolio complexity. Of the institutions we surveyed: Source: State Street 2014 Official Institutions Study conducted by FT Remark CORP-0978
- 5. 5 OFFICIAL INSTITUTIONS State Street 2014 Official Institutions Study Monitoring, Measuring and Reporting Risk • 86 percent of respondents rate market risk as one of their top three concerns, and it is the biggest risk-related concern for more than one- third (36 percent) • Just under three-quarters (73 percent) say operational risk is a top-three risk, and it comes top for one-quarter (26 percent) • Sixty percent of respondents plan significant updates to their risk management systems over the next two years • Thirty-two percent of respondents say it is difficult to recruit the talent they need for effective risk management 0% 25% 50% 75% 100% Legal risk Political risk Counterparty risk Liquidity risk Data security risk Operational risk Market risk Most important Second most important Third most important Of the multitude of risks that official institutions must now consider, the two biggest areas of concern are market risk and operational risk. Source: State Street 2014 Official Institutions Study conducted by FT Remark CORP-0978
- 6. 6 OFFICIAL INSTITUTIONS State Street 2014 Official Institutions Study Optimizing Operations Source: State Street 2014 Official Institutions Study conducted by FT Remark 4.79 4.95 5.28 5.43 4.41 4.56 4.61 5.57 Least Important 1 Most Important 6 Operations Minimizing operational costs Maintaining an operating infrastructure that fully supports investment policies/needs Balancing mix of in-house and outsourced activities Ensuring integrated front-to-back office processing Data Ensuring data security Integrating performance and risk analytics Conducting regular, comprehensive scenario analysis and stress testing on portfolio Managing and cleansing multiple data streams in varying formats Level of priority placed by official institutions (average score) Official institutions must create streamlined yet resilient operational models, which means reducing costs while not compromising on standards. CORP-0978
- 7. 7 OFFICIAL INSTITUTIONS Action Plan for Official Institutions Focus for the Future Challenges Key Areas of Focus Deliver Investment Objectives in a More Complex Market Environment • Reassess and balance risk against return, within specific investment strategy, and develop appropriate benchmarks • Increase exposure across markets and asset classes in a way that supports strategy Meet Changing Regulatory Requirements Across Global Markets • Stay up-to-date with requirements across all relevant markets • Build and add to capability in risk and reporting Identify and Manage Risks Across More Diverse Areas • Treat risk management as an ongoing process and perform regular audits • Closely monitor liquidity profile to support risk management Improve Operational and Cost Efficiency • Identify and eliminate process inefficiencies • Refine outsourcing model to make best use of internal expertise and third- party providers Generate Greater Value From Data • Consolidate data provision to minimize costs and maximize value • Make use of powerful data and analytic decision-making tools to make better-informed investment decisions and fulfil regulatory requirements CORP-0978