BOISE, Idaho, NEW YORK, CHICAGO, LONDON and HONG KONG, Sept 23 – 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 Rise of the Core-Satellite Approach
Fund managers are moving away from monolithic, benchmark-tracking frameworks and are broadly embracing a core-satellite asset allocation strategy.
A striking 76% of fund managers surveyed say that advanced Portfolio Management Systems have significantly influenced the execution of core-satellite asset allocation strategies. Furthermore, 75% of managers say integrated data analytics tools are necessary for real-time performance measurement and attribution.
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.
Keith Viverito, Managing Director EMEA at Clearwater Analytics, said: “What stands out in this data is how many firms are making similar moves. That’s worth watching, because a strategy the whole market adopts together behaves differently than one only a few firms hold. As portfolios grow more complex, managing alternatives and hedges in real time depends on trusting the data behind them. Whether that trust is earned or assumed is the question every firm making this move should be asking itself.”
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.
Death of the Annual Review: The Move to Dynamic Rebalancing
One of the most profound operational trends uncovered by the study is the decline of static, annual or quarterly portfolio rebalancing cycles. Fund managers are turning to automated, intra-day dynamic rebalancing protocols.
Seventy-seven percent of respondents rate the current quality and execution agility of their firm’s portfolio rebalancing frameworks as ‘good’ or ‘excellent’. Just 22% rate their capability as merely average, and none report poor rebalancing infrastructure, highlighting the heavy technology investments made across the sector.
Heightened Portfolio Velocity and the Goal-Oriented Paradigm
Nearly nine out of 10 (89%) fund managers say they have increased their firm’s baseline trading levels and altered portfolio construction over the past 12 months to adjust to market changes.
This continuous tactical trading is happening within a newer approach: Goal-Oriented Portfolio Design. In this approach, managers build multi-asset portfolios around specific liability or cash-flow targets, rather than a benchmark. All 250 firms surveyed rate their own capability in this area as either ‘quite sophisticated’ (68%) or ‘very sophisticated’ (32%).
The Long-Term Execution Paradox
Yet, this 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.
“Fund managers are confident in their goal-oriented strategies, yet more than half are struggling to execute their long-term visions because they are constantly forced to react to short-term volatility,” added Viverito. “That gap between conviction and execution is where the real risk sits. The firms that manage it best will be the ones who can tell, in the moment, whether a tactical trade serves the long-term strategy or works against it.”