Institutional investors will need to re-think investment strategies and consider growing their private market exposure they are less familiar with if they are to generate adequate returns in future, according to an analysis by Mercer.

Central banks internationally have worked together to stimulate economic growth since 2008, but this synchronised action was expected to gradually come to an end in 2015, the consultancy said.

There was now a growing disparity between the improving economic performance of the US and the UK and weakness in the eurozone and Japan, it explained.

Deb Clarke, head of investment research at Mercer, said: “As central bank policy starts to diverge we expect to see more volatility and higher dispersion in markets.

“This should create a more fertile environment for macro and long-short investors, in particular,” she said.

Institutional investors needed to expand their opportunity set because of the limited opportunities available, and consider having less constrained mandates, Mercer said.

Manager skill would be increasingly important as investors hunted for scarce returns, the analysis concluded.

Clarke said institutional investors should also set up a robust risk management framework that drew on scenario and stress test analysis as well as the more traditional ‘Value at Risk’ analysis.

“Considered manager selection also remains critical in identifying strategies that are capable of providing a diversifying and sustainable source of return,” she said.

The consultancy said the low level of yields available across a wide range of asset classes would make it hard to be sure of generating a decent level of return.

”Private markets may offer a richer opportunity set than many listed markets given that much of the central bank stimulus has been absorbed by the listed bond and equity markets,” the report noted.

However, this did not mean financial assets were now in a bubble and set to fall, it said

“Indeed, the supply and demand dynamics of financial markets — that is, the large and increasing monetary base seeking a home in yield-producing financial assets — suggest that markets could continue to rise for some time,” the report added.

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