Asset owners are struggling with the forces of regulation and loose monetary policy. Regulators and central bankers have forced asset owners to reconsider how they invest and, crucially, how they manage their tangled risks and operational burdens.

Lower fixed-income returns are pushing some investors into illiquid asset classes. But apart from the largest investors, only few are equipped to cope with real estate, infrastructure, and private equity internally. As a result, joint ventures and co-investment structures are proliferating.

Traditional silo-based exposures to bonds and equities are being torn down in favour of factor- and risk-based models. While trade-offs between risk and return have always been a core part of investing, understanding risk has come to feature much more prominently as the shift into more opaque and illiquid asset classes has gathered pace. Asset owners--particularly trustees in smaller pension funds -- may struggle with the complexity of new investment strategies.

Environmental, social and corporate governance (ESG) factors are becoming increasingly important, adding further complexity. Yet many organisations see ESG not merely as an issue of reputational risk, but also as a means to improve their management of investment risk and returns.

According to asset owners, the issue of sharing data between stakeholders and then reporting them correctly and cost-efficiently to regulators has yet to be resolved. In addition, there can be skills gaps, as illiquid asset classes are less familiar to internal staff and traditional custodian services.

Responding to these myriad pressures requires squeezing out costs. However, asset owners stress that operational and administrative sourcing decisions must not be driven by cost alone. Indeed, low cost can be a false economy, particularly when cultural, systems and regulatory requirements are factored in. Rather, asset owners need to balance what they manage in-house, what they outsource, and how these elements come together to deliver on the organisation's overall strategy.

Consolidation is one solution to manage costs and achieve economies of scale. But politically mandated reorganisations thrust upon asset owners are likely to have unintended, unwelcome consequences for investment flexibility.