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06 June 2023

Turning to Diversification as Markets Maintain Volatility

In today's uncertain economic environment, with increasing market volatility and heightened recessionary fears, asset class diversification is an apt navigational strategy. Additionally, as asset managers are confronted with a range of risks to manage, from geopolitical tensions to rapidly evolving technology, they need to ensure that their clients' portfolios are prepared for any uncertainty.

Evaluating New Investment Strategies While Mitigating Risk

By expanding into new asset classes, regions, and sectors, asset managers can reduce their exposure to any single risk factor and increase their potential for returns. However, achieving effective diversification is complex. It requires a deep understanding of the investment landscape and a sophisticated approach to risk management. Therefore, asset managers should constantly monitor market trends and adjust their portfolios accordingly while staying ahead of the curve in terms of new investment opportunities and emerging technologies.

One approach that has gained traction in recent years is using alternative investments. These can include anything from private equity and hedge funds to private debt and swaps. By incorporating alternative investments into their portfolios, firms can achieve greater diversification and potentially higher returns.

Alternative investments come with unique risks and challenges, such as illiquidity, lack of transparency, and higher fees. As a result, it's important for firms to carefully evaluate each investment opportunity to understand how it fits within their overall portfolio and business mandates.

The Right Operational Model

To satisfy the need for diversification and effectively expand AUM, investors face two main challenges. The first is to either develop or acquire the necessary investment expertise to handle the often highly specialized assets. Secondly, it's crucial to consider whether the technology platforms and operations teams can support the complex accounting and reporting requirements associated with managing a diverse asset portfolio, which is often overlooked, yet equally significant.

Seamlessly integrating alternative assets into a firm’s investment offering requires a comprehensive solution that can manage, record, and report on various asset classes within a single platform, including support for:

  • Broad asset class coverage
  • Granular investor accounting
  • Transparent reporting

Without these capabilities, a firm becomes dependent on a considerable amount of manual processing, which invites significant risk.

The current economic climate requires firms to have a proactive and adaptive operations team that can seamlessly manage their investment strategies. By staying attuned to market trends and future-proofing their back-office, investors can easily navigate their client’s evolving expectations and achieve their investment goals while minimizing operational risk.

For more on the renewed focus on diversification, download our whitepaper, Meeting the Demand for Diversification: The operational foundation for a multi-asset environment, or to learn more about Geneva®, request a demo.