A complex market environment comprised of diverging interest
rates, fluctuating commodity prices and unpredictable growth
rates in both developed and emerging markets has pushed
official institutions to become more agile and flexible.
Two years ago, organizations were considering new strategies
in the wake of increased regulation and a challenging
investment environment. In a 2014 State Street survey, we found
that despite concerns about the challenges associated with new
markets and asset types, 80 percent of official institutions
expected to increase their exposure to new markets and, when
institutions have the appropriate mandate, to alternative
Now central banks,
sovereign wealth funds and government
pension funds are attempting to secure the returns they
need in a climate in which they anticipate an impact from a
number of factors (see chart).
A select group we call NIMBLE institutions
distinguished by six measures of organizational agility
is gaining a clear performance advantage in the face of an
uncertain market. According to our new official institutions
research, conducted by Oxford Economics, Transforming
to Meet the Needs of a New World, they are pursuing a
more dynamic investment approach, diversifying their portfolios
by adding exposure to regions like Asia-Pacific and by looking
at new strategies, such as
environmental, social and governance (ESG) investing, to
generate higher returns.
Faced with fundamental challenges to their investment
strategies, NIMBLE organizations are more likely to identify
themselves as being able to do the following:
Network, collaborate and create ad hoc
teams for flexible working.
Investigate and react quickly to investment
opportunities. Diversification is among the priorities of
NIMBLE institutions to take advantage of opportunities in new
markets or investment strategies, such as ESG, to help bolster
Mix internal and external talent to meet
business needs. NIMBLE organizations understand they need the
right skillsets within their own four walls. But they also know
that not all can be accomplished without capable outside
managers to support and help develop their business.
Build adaptable business processes that
respond to business priorities. Flexible processes that support
all other measures of becoming a NIMBLE institution are
imperative to easily take advantage of new opportunities or to
Learn continuously through a culture that
promotes development. Nearly all NIMBLE institutions say they
foster a culture of curiosity, entrepreneurial spirit and
growth to respond successfully to a rapidly evolving industry
and heightened market volatility.
Execute effective technology upgrades to
support operations. The need for technological agility should
be high among a companys priorities.
A NIMBLE culture is affected less by an institutions
type, size or location and more by results stemming from
conscious management action and investment decisions in three
areas: risk management, technology and talent.
Risk management. Institutions that were
found to be NIMBLE are the ones upgrading their approach to
risk. In fact, about 75 percent of the institutions in our
research say they have changed their approach to managing
investment risk in the past three years 20 percent more
than other official institutions. They are continuing to
improve their risk portfolio: 79 percent report expanding
scenario modeling; 74 percent are increasing portfolio
diversification, using derivatives and engaging in risk factor
analysis; and 58 percent are engaging in currency-hedging
strategies to better manage investment risk.
Technology. Priorities for NIMBLE
institutions include investing in advanced information
management techniques to better manage data and the associated
risks. Over the coming year, strengthening cybersecurity and
data warehousing are at the top of NIMBLE institutions
to-do lists. Other institutions, in contrast, rank higher in
prioritizing hiring or training more advanced technology
capabilities in house and integrating performance and risk
Talent. Building new capabilities is
critical in a time of increased volatility, which requires
advanced skills and knowledge. NIMBLE institutions are more
likely to prioritize upgrading talent in key areas of their
organizations, with data management and analytics, investment
and governance as the priority areas. In contrast, they are far
less likely to prioritize risk and compliance, perhaps because
they have already made the necessary investments in this
With uncertain economic times come both threats and
opportunities. Pro-active decision making is integral to
overcoming such hurdles. The institutions that do so will be
the ones poised for long-term success.
Jessica Donohue is chief innovation officer and head of
advisory and information solutions for
State Street Global Exchange in Boston.
State Street Global Advisors disclaimer.