Equity was the favourite asset-class among bfinance clients in 2009, ahead of alternative and fixed-income as financial markets continued the path to recovery. Equity represented 47% of all bfinance mandates compared to only 19% in 2008. Alternatives accounted for 14% of bfinance mandates compared to 32% in the prior year. Fixed-income dropped to 36% from 48%. Balanced mandates contributed to 1% of all deals in 2008 and none in 2009.  Our study is based on an analysis of only bfinance searches on an asset-weighted basis. Within equity, global equity led the way followed by European stocks and emerging markets. With the exception of one passively-run global equity mandate, all others were actively-managed briefs.

Our mandates largely confirm the findings of a January 2010 asset allocation survey in which almost half (46%) of polled pension funds expected an increase in their equity exposure, 35% planned a reduction and 19% had no intention to change their allocation. This signalled a significant commitment to equity compared to our first survey in the fall of 2008 during the global stock market rout when only one-fifth (19%) expected an increase, 37% planned a reduction and 41% had no intention to change. The balance had no equity exposure. In addition to warming to global equity, emerging market equity has also elicited strong interest. Last year proved to be a strong one for all MSCI indices. Emerging markets displayed the strongest signs of recovery returning 72.9% for the MSCI Emerging Markets Index. The relative strong performance of a number of currencies against the dollar in 2009 significantly contributed to the positive returns of the MSCI indices. Emerging market equity represented about 6% of our total mandates while global equity represented 15% of the total in 2009.

 

  Asset allocation of bfinance mandates on an asset-weighted basis

 

Within fixed-income, corporate investment-grade bonds led the way (16.1%), followed by global fixed-income (12.2%). Record amounts of corporate bond issuance at historically high spreads attracted investors towards debt during the first half of 2009. As noted above, alternatives elicited less excitement as investors turned away from unconstrained briefs in the months following the financial crisis. A UK unconstrained mandate accounted for about 12% of bfinance deals in 2008, the second highest among all mandates that year. There were no such deals in 2009. Within the alternative category hedge funds and FoHFs accounted for 5.2% of our 2009 deals compared to 1% in 2008.  Hedge funds gained 18.5-20% in 2009 depending on the index-tracking firm, making it the industry’s best year since 1999, when they returned 31%.



There were no property deals in 2009, whereas this asset class accounted for 10% of all mandates in 2008. The tide may be turning in favour of property. Following a particularly difficult period, real estate is poised to be the beneficiary of a shift in global institutional investor allocations. Our 2010 deal flow suggests investors continue to move down the liquidity scale, investing in riskier asset classes and diversifying into alternatives. “Current searches suggest investors are allocating more to property and single hedge funds,” notes Olivier Cassin, Managing Director, Research & Development bfinance. “Our deal flow indicates strong interest in single hedge funds, emerging markets and Asia/Pacific. We continue to see strong flows into corporate bonds and equities. US equities in particular are starting to attract more attention as the recovery story takes hold and on the back of a strengthening dollar.”

 

 

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