Big Investors Seek Custom Solutions to Low Rates, Volatility

Multi-asset-class solutions can range from custom target-date strategies for larger defined contribution plans, to derivatives-oriented managed volatility overlay strategies, to the most sophisticated volatility or income targeting and absolute return investments, according to Ceulli.

 "At a higher level, though, asset managers and other providers spend a great deal of time and resources demonstrating a track record and proficiency in tactical asset allocation, which can involve views on the capital markets, relative valuations and market liquidity, among other elements," Maravel said in a statement.

According to Cerulli, about 60% of MACS strategies continue to be judged on outperformance of a traditional market benchmark as opposed to an objective such as real returns or volatility targets.

"MACS is a function that is almost always based on an asset manager's or other provider's ability to tactically allocate among multiple asset classes, because inherently the strategies will have more than one underlying asset class," Maravel said in a statement. "Only about one-third (31.3%) of asset managers and other providers say their institutional clients place a high value on tactical asset allocation ability. This is not surprising as some institutions continue to feel confident in their ability to oversee all forms of asset allocation."

Overall, custom solutions mandates tend to be complex and, according to Cerulli, clients expect a greater amount of interaction with a manager than in traditional single-asset-class assignments.

Cerulli finds that a majority (68.4%) of firms overseeing these mandates report having a dedicated team to work with custom solutions clients. The most-cited roles serving institutional custom solutions mandates are portfolio manager and investment specialist (89% and 83%, respectively).