| Specialist mandates take a new turn as balanced management fades away |
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| 5.06.2005 | |
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Expectations of flat stock markets and low bond yields are leading pension funds to revisit their investment strategies. But as the shift to specialist mandates has by and large already happened, some schemes are now pushing specialisation further, seeking to match liabilities and generate alpha. The separation of equities and bonds might just have been a first step in a long process of phased specialisation. "There has already been a clear shift from balanced to specialist mandates", reminds Mark Samuelson, the Head of UK institutional business at Investec Asset Management, adding that specialisation can be seen as an incremental process. Pension funds that have already terminated their balanced mandates usually enter a "second phase" specialisation. They further diversify into alternatives, adding hedge funds, commodities, and private equity to their allocation satellite. Specialisation fast track A good example of the "phased approach" to specialisation was provided no later than last month, when the UK's Environment Protection Agency (EPA) presented the new investment design for its £995m active pension scheme. In the process, it dumped all its three balanced mandates, replacing them with six specialist mandates. But only ditching its balanced manager was not enough for the EPA. A late mover, it compressed the second phase of specialisation into the first one by adding two alternative mandates in property and private equity to its portfolio. Sophisticated schemes go further than only grafting a satellite of alternatives to their core allocation. They embrace relatively new ideas for their core mandates, such as unconstrained mandates, enhanced indexation, indexed-linked bonds as they aim at getting the points of outperformance that will make up for the pension deficits accumulated over the recent years. "Most new mandates now seem to be targeting 2% plus rather than the 1% "core" approaches that were the norm for many years", points out Stephen Holt, institutional sales Director at Threadneedle Investments. Liability driven investments, an investment approach that allows for the creation of an overall portfolio whose aim is to outperform the liabilities, could be the "next major trend", according to Peter Ball, the Head of UK Institutional Business, JPMorgan Asset Management. "If providers can find ways to educate trustees and provide solutions that are relatively straightforward to implement and monitor, then it is likely that this will become an important part of UK pension plan investing in future", he says. Change and growth In turn, specialist mandates have begun to undergo profound changes. "Many plans are looking to refine their specialist structure which they have now had for a number of years", observes Peter Ball. According to actuary consulting firm Hymans Robertson, many of the specialist beauty parades that took place in 2004 sought to replace the incumbent specialist managers for existing briefs rather than to place new mandates. "We could see a pick up in specialist searches in 2006 as the three-year mandates of early movers come to an end", says Terry Mellish, the Head of UK institutional sales and marketing at Credit Suisse Asset Management. Elsewhere in Europe, specialist mandates are also pushed by the development of intermediation as pension schemes and other institutional investors drop in-house management and outsource their investment operations. This could act as a growth path for specialist mandates. "Intermediation by global consultants in Europe is favouring the trend toward specialisation as they are advising specialist mandates", says Terry Mellish. More phases For some of Europe's most sophisticated schemes, their new investment design is the result of a holistic reflection process. For instance, Europe's largest pension fund, €170bn Dutch public service scheme ABP announced in 2004 that it would concentrate fully on active management, having already attained its targeted portfolio mix. Until now, 45% of the fund's assets were passively managed, but all will now be subject to an active management seeking to produce alpha in order to outperform markets that are expected to be rather tepid in the coming years. The management of the scheme's assets, which also used to be done mostly in-house, has been gradually outsourced and is now mostly performed by external asset managers. Swedish buffer fund AP3, another European investment behemoth, also announced sweeping changes in its investment approach in May. Following the implementation of a more dynamic reference portfolio allocation strategy in 2003 and 204, the scheme has decided to increase the level of active risk of its equity and fixed income portfolios. Managers will have more freedom to squeeze more alpha out of their mandates. The scheme, which sees itself as a "manager of managers" also created a "global equity group", whose main objective is to dynamise AP3's investments by allocating investments more actively between regions, segment and sectors. For the Swedish buffer fund, that's a strategy that "reflects a global trend among pension funds towards dynamic portfolio management combined with an increased focus on absolute risks." J.L. |
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Artikel zu diesem Thema : Investment mandates |
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