A risk parity allocation approach distributes capital to different asset classes according to risk criteria, so each asset class will contribute equally to the overall risk of the portfolio. Essentially, the idea is that the portfolio should be more resistant to market downturns if each asset class contributes the same potential for losses – a very useful quality in volatile markets. In concrete terms, higher-risk asset classes, such as equities and commodities, receive less capital than less risky assets such as bonds, says Aquila.

When Aquila Capital polled 255 institutional investors recently, the survey, besides finding widespread lack of familiarity with the concept, also found that of those who did know the term, only 22 per cent of them have allocated part of their portfolio to risk parity strategies. Some 60 per cent of them have made allocations of under 2.5 per cent, the survey found.

More positively, half (50 per cent) of institutional investors familiar with risk parity, but not currently invested, would consider using the approach. Also, 20 per cent of investors who are invested in such strategies want to boost allocations.

The firm polled banks, insurers, foundations and other insurers for the survey in Scandinavia; Switzerland; Germany; Spain; France; Italy, the Netherlands and the UK.

Despite all the travails of recent years, there is no sign of the financial industry turning its back on new jargon and investment terms, whether they be liability driven investing, Sharpe ratios, long tails or for that matter, fiscal cliffs. Get ready to hear more about risk parity.