Fewer managers are needed to achieve the appropriate level of diversification post the global financial crisis, according to Towers Watson global head of investment consulting Carl Hess.

The recent market events had led to a rethink on the role of risk and diversification in investment portfolios, Hess said.

He said investment portfolios must now include a diverse portfolio of market opportunities combined with better techniques to manage liability risks.

"This type of portfolio can be made up of beta opportunities and does not necessarily need to rely on active management to any great extent," he said.

"As such, it can be implemented with considerably fewer managers than we would typically use in a fully active portfolio, so eight to 12 rather than 25 to 30 investment managers."

Market opportunities include insurance-type strategies, emerging markets and alternative betas.

"Insurance-type strategies include the premium return an insurer gets from assuming risk. For example, we can invest in insurance stocks or catastrophe bonds," Hess said.

Investors should also look at investing in companies directly exposed to emerging market growth, such as infrastructure or domestic consumption, rather than large global companies based in the region.

Alternative betas included strategies that exploited asset classes not usually used by investors, such as reinsurance and volatility strategies as well as emerging market currencies, Hess said.

Investing in value and small-cap stocks was another alternative beta strategy as those stocks exploited systematic risk in conventional asset classes, he said. 

"We are seeing no more chasing pennies in front of steamrollers. This means there will be less of the sorts of activities investors pursue to produce extra basis points. We will see less of securities lending or enhanced indexation," he said.

"All we [investors] want now is a simple passive program, thank you very much. We will then be able to sleep at night."

Towers Watson manages $2.3 trillion in assets under advice on behalf of institutional clients.