Ocorian study with board directors of large companies reveals increasing risk appetite as acquisitions become more attractive
BOARD DIRECTORS’ RISK APPETITE IS GROWING AS ACQUISITIONS BECOME MORE ATTRACTIVE
- Six out of 10 directors say their organisation’s investment risk appetite will increase next year in a major turnround from this year
- Lower prices for potential acquisitions, falling interest rates and more opportunities to make distressed purchases are boosting risk appetite, Ocorian study shows
- Companies are investing in more risk management staff and new technology and expanding overall budget for risk management to help mitigate risk
Board directors’ risk appetite is set to expand over the next 12 months as companies focus on acquisition opportunities amid expectations that inflation and interest rates will fall, new research* from Ocorian, the specialist global provider of services to financial institutions, asset managers, corporates and high net worth individuals shows.
Ocorian’s international study among board directors at leading firms with turnover of more than $250 million shows investment risk appetite next year is much higher than this year.
Six out of 10 (61%) board directors questioned in the international study say their organisation’s investment risk appetite will increase in the year ahead – more than treble the 18% who say their organisation’s investment risk appetite will fall.
The key reason for the rise in investment risk appetite is the belief that pricing around deals will become more attractive. Nearly one-third (29%) selected that as one of their top three reasons for an increased investment risk appetite while 27% selected lower interest rates and 25% selected more opportunities to make distressed purchases among their top three.
Major concerns identified in the study are worries that inflation may not fall, global political uncertainty, and the view that costs in general increasing. Around 16% of firms whose investment risk appetite is falling cited inflation while 14% highlighted political uncertainty and the same number cited costs in general increasing as the reason for their declining risk appetite.
Ocorian’s study found companies worldwide maintained their focus on risk mitigation over the last 12 months with 63% having already expanded their risk management teams and 61% have invested in new technology. Around 47% expanded their overall risk management budget.
Companies are still very much focused on risk mitigation. Seven out of ten (71%) will invest more in new technology in order to mitigate risks while 43% plan to expand their risk management team and 41% will increase their overall budget for risk management.
Paul Spendiff, Head of Business Development – Fund Services, at Ocorian, said: “Investment risk appetite is clearly increasing according to our study, with senior executives and major investors expecting a shift in global macroeconomic conditions as well as more opportunities for acquisitions at more attractive prices.
“The optimism about the year ahead and growing confidence is tempered by a focus on risk management and there is evidence from the study that companies have invested this year in new technology and risk management staff in order to expand in the year ahead.
“That focus is being maintained and we are seeing growing demand for our services as we help our clients solve these complex issues. In addition there are major concerns about the year ahead ranging from global political uncertainty and heightened global tensions in the Middle East and Ukraine as well as the risk of recession in major economies.”
The table below shows the key reasons for investment risk appetite rising or falling identified by the research.
| REASON FOR INVESTMENT RISK APPETITE RISING | NUMBER OF RESPONDENTS SELECTING AMONG THEIR TOP THREE | REASON FOR INVESTMENT RISK APPETITE FALLING | NUMBER OF RESPONDENTS SELECTING AMONG THEIR TOP THREE |
| Pricing around deals is more attractive | 29% | Inflation remaining high | 16% |
| Interest rates will start to fall | 27% | Political risk | 14% |
| More opportunities to make distressed acquisitions | 25% | Interest rates and cost of debt | 14% |
| Inflation will start to fall | 18% | Rising costs – salaries, materials | 14% |
| AI and technology are reducing levels of risk | 12% | Deal pricing remains too high | 12% |
| Operational risk has reduced | 8% | Growing threat of war globally | 12% |
| Recruitment and retention has improved | 6% | Threat of a recession | 10% |
Ocorian is a global leader in real asset fund administration, capital markets, corporate and fiduciary services. Ocorian helps its clients solve complex problems so they can optimise investment performance and build their competitive advantage.
ENDS
Note:
The above is intended to provide a very general overview of the matters to which it relates It is not intended as legal or investment advice and should not be relied on as such.
*Ocorian commissioned independent research company PureProfile to conduct a global study of 301 senior executives which included 51 board directors of leading firms. The survey was carried out among board directors at companies with annual turnover of more than $250 million, fund managers working in family offices, private equity, venture capital and real estate; and senior executives working in capital markets focused on structured credit, CLOs, securitisation, mortgage-backed securities and asset- backed securities. Respondents to the survey, which was conducted in November 2023, were based in the UK, continental Europe, Asia, the Middle East and North America
