Professor Schena Explores "By The Numbers: The Quest for Performance"

State Street Center for Applied Research

Our objective in this paper is to offer a perspective. We studied institutional investment patterns to understand how investors are coping with the challenges of portfolio construction and strategic asset allocation amidst low returns. Our analysis focused on the investment decisions of university endowments, global pension funds and sovereign wealth funds. Our approach was to examine investment patterns in institutional portfolios as a baseline for understanding changes in the investment process. Using empirical analysis, supplemented by survey reviews and manager interviews, we then identified six critical factors driving innovation in meeting the dual challenges of more risk and less return. We next traced the performance impacts of investor responses, and finally distilled these into five factors for asset owners and managers to consider in relation to the challenges of asset allocation in a low-return world. Importantly, our findings have broad applicability across asset owners and will be of interest not only to large institutions, but also foundations, small endowments, family offices and even high-net-worth individuals.