Clearwater Analytics announced today fund managers are executing a multi-trillion-dollar restructuring of their portfolio construction frameworks to shield capital against macroeconomic volatility and geopolitical instability.
A comprehensive global study, „The Crowded Trade„, by Clearwater Analytics, which surveyed 250 senior executives at fund managers across the U.S., Europe, and the Asia-Pacific region, reveals that traditional, static asset allocation frameworks are rapidly being retired. In their place, fund managers are adopting dynamic rebalancing, private-market exposure, and goal-oriented, core-satellite portfolio design.
The Institutional Rush into Alternatives:
To deliver more uncorrelated returns and dampen standard deviation across core portfolios, fund managers are increasingly executing a structural rotation into alternative asset classes.
The data highlights an overwhelming fund manager consensus: 90% predict that the inclusion of alternatives – specifically private equity, private credit, infrastructure, and hedge funds – within core strategies will increase over the next three years. This is shifting liquidity requirements across public and private asset classes, forcing managers to manage heightened redemption and underlying liquidity risks.
Geopolitical Volatility Sparks Hedging Super-Cycle:
The operational and macro landscape has grown fraught, driven by technological cyber risks and cross-border asset threats. In response, global fund managers are increasing sophisticated derivative overlay and hedging.
Over the past year, 55% have increased their internal usage of hedging mechanisms. Over the next 24 months, that trend continues. Nearly four in five firms (79%) forecast further increased use of hedging strategies.
Navigating the Non-US Regional and Thematic Rotation:
In addition to the shift in asset classes the research shows a deliberate global rotation away from historically heavy US capital market concentrations. Driven by a hunt for growth, 69% of fund managers project a structural rotation toward European equities and thematic investing over the next 24 months.
Simultaneously, the mandate to manage climate-related transition risks is altering regional capital flows. Over the next five years, fund managers see the ‘greening’ of institutional portfolios accelerating at vastly different speeds globally. Europe is the clear leader in this sustainability push, with 40% of managers anticipating aggressive, near-term structural green portfolio design. By comparison, the corresponding figures for the United States and APAC are 18% and 12% respectively.
The Long-Term Execution Paradox:
The constant need for short-term, tactical adjustments is creating a fund manager execution paradox. Fund managers are finding it increasingly difficult to maintain their long-term strategic asset allocations.
When asked if market volatility is directly preventing them from sticking to their fund’s long-term strategy and multi-year goals, more than half (53%) of all respondents admitted that it was a major, ongoing challenge. Only 4% said they face no friction in preserving their long-term strategic investment horizons.
