Options Gain Investor Approval
GREENWICH ASSOCIATES STUDY FINDS MORE THAN 80 PERCENT OF INSTITUTIONAL INVESTORS SURVEYED WHO USE EXCHANGE-LISTED OPTIONS ARE SATISFIED WITH PERFORMANCE
CHICAGO (May 3, 2018) – The Options Industry Council (OIC), an industry resource funded by OCC, the world’s largest equity derivatives clearing organization, today shared the results of a new study by Greenwich Associates, How Institutional Investors Use and Think About Exchange-Listed Options, which found that more than 80 percent of institutional investors surveyed who currently use exchange-listed options are satisfied with the performance against major market benchmarks.
OIC sponsored a Greenwich Associates study to take a closer look at how institutional investors use and perceive exchange-listed options strategies. Greenwich Associates interviewed 80 institutional investors in the U.S., including asset managers, corporate pension plans, public pension plans and endowments with total combined assets under management of more than $1 trillion.
The goal of the study was to identify target audiences and educational strategies for the OIC that may lead to increased adoption of exchange-listed options strategies among institutional investors.
“The valuable insights gained from this study will support our continued efforts to provide the most relevant educational thought leadership to asset managers, pension funds, and endowments. We want to lead deeper discussions with the institutional investor community on the strategic benefits of exchange-listed options and how exchange-listed options strategies potentially improve risk-adjusted returns and address the pension elephant in the room, which is underfundedness,” said Joseph Cusick, OIC Director of Institutional Investor Education.
Many U.S. public pension plans are facing a funding shortfall with assets not anticipated to sufficiently cover future liabilities. While historically investments in options strategies have been overlooked as a means to improve risk-adjusted returns, pension funds and endowments are exploring different investment strategies and exposure to alternative asset classes. The Greenwich Associates study found that almost half of the asset managers interviewed are considering future investments in exchange-listed options strategies and over a third are considering over-the-counter (OTC) options strategies. Exchange-listed options are deemed superior to OTC options by participants in the study, as they offer real-time price discovery, greater transparency, less regulatory complexity and since they are centrally cleared through OCC, there is reduced counterparty risk.
The study also found that only four percent of respondents disagreed that options strategies could improve the risk-adjusted return profile. Moreover, it showed that while institutional investors primarily look to implement exchange-listed options strategies for portfolio protection, risk diversity is another key driver as the non-linearity of exchange-listed options strategies means their potential returns come with less risk exposure in the fund.
Although utilizing options to enhance investment returns is not a new concept, the pension community has yet to widely embrace options strategies that could enhance yields while reducing risk. The study showed the main reason for not using options is that they are not perceived to fit with the fund’s primary investment strategy. Another reason institutional investors avoid options, according to the study, is that the fund’s investment mandate does not approve them. However, the study noted that once institutional investors decide to invest in options strategies, there is a short due diligence process of six months to one year with most participants reporting the critical decision factor was buy-in from the chief investment officer.
Celebrating its 25th anniversary, OIC is an industry resource funded by OCC, the world’s largest equity derivatives clearing organization. Its mission is to provide free and unbiased education to retail investors, financial advisors and institutions about the benefits and risks of exchange-listed options. Managed by OCC, OIC offers training which includes webinars, podcasts, videos, seminars, self-directed online courses, mobile tools, and live help. OIC’s Roundtable is the independent governing body of the Council and is comprised of representatives from the exchanges, member brokerage firms, and OCC. For more information on the educational services OIC provides for investors, visit www.OptionsEducation.org.
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