Latest Content » COMMENT » From the Editor

A recent survey by Mercer, the investment consultants, reveals that European pension funds are paying greater attention to risk management. It’s an encouraging trend, especially in this time of market turbulence.

It is often said that diversification is the only free lunch in town. Perhaps not anymore – if it ever was, for investment consultants, Watson Wyatt, have produced some research which shows that pension funds are paying on average 50 per cent more in fees than they were five years ago.

Am I alone in thinking that the suspicion and criticism directed at sovereign wealth funds by bankers, politicians, regulators and journalists in Europe and the US is a tad unsavoury and not a little hypocritical, given the scandalous losses and write-downs announced by the world’s biggest investment banks and the less-than-stellar performance posted by many secretive and expensive hedge funds?

While alternative investment managers will be encouraged by the latest round of industry surveys which show that institutional investors plan to increase their allocations to hedge funds, private equity and real estate over the coming years, it appears much work remains to be done to persuade the un-invested to take the plunge.

Right now, China’s Qualified Domestic Institutional Investor (QDII) scheme seems like a licence to print money. The four QDII funds launched by asset managers since September have attracted a headline-grabbing total of $40.65bn in subscriptions from Chinese retail investors, before being capped at $4bn each.

When The Police describe the rush hour hell faced by hapless commuters in the song 'Synchronicity II', the lyrics might also apply to the behaviour of the world’s investment banks who crowded into the shiny boxes that were collateralised debt obligations containing subprime mortgage debt.

Amid the uncertainty surrounding the final outcome of the subprime mortgage crisis, it is hard to tell what the impact has been on pension funds. But it is likely that the steady diversification of investment portfolios since the dotcom-driven stockmarket crash has left pension schemes less hostage to the fortunes of a single asset class.

During a CEO panel discussion on the merits of specialist boutique managers versus large investment firms at the recent Fund Forum conference in Monaco, a question directed at the audience drew a telling response.

Despite the hype surrounding liability-driven investing, it seems all the talk is translating into little action. A recent report by SEI revealed that only 20 per cent of 226 pension funds polled in Canada, the Netherlands, UK and US were actually implementing an LDI approach while 33 per cent were not even considering it.

The large number of international delegates who gathered in Hong Kong to attend the recent Fund Forum Asia conference was clear testament to the keen interest among asset managers to break into or seize new opportunities in a region with huge growth potential.

Are you an investor ready to seize first mover advantage or are you happy simply to follow the herd?

At a recent UK National Association of Pension Funds investment conference, pension schemes were urged to replace their obsession with peer group benchmarking and short-term investing with a longer-term horizon and greater diversification into alternative asset classes.

At time of writing, it was reported that Blackstone, the private equity group, had paid just over £1bn (€1.46bn) in cash for the Tussauds Group, owners of the famous Madame Tussauds waxworks in London.

Bigger is better is the mantra of many in the securities services business. They believe that critical mass creates a virtuous circle of economies of scale driving increased profit which in turn permits the on-going technology investment necessary to build the servicing capability which attracts even more assets.

Given the mediocre returns registered by funds of hedge funds in 2006, coupled with the extra layer of fees charged by these vehicles, are they such a wise proposition for institutional investors going into the new year?

The importance of educating pension fund trustees in sophisticated investing was highlighted again and again at a recent institutional investment conference in Dublin.

The massive losses suffered by Amaranth Advisors, coupled with the remarkable fall from grace of Vega Asset Management, has forced investors to focus hard on the risks associated with hedge fund investment.

So Goldman Sachs Asset Management (GSAM) is organising a series of free monthly seminars for UK pension fund trustees in conjunction with the University of Westminster. Under the name of the Pension Investment Academy, the aim is to improve trustees’ understanding of the fundamentals of pension investing.

Given the plethora of often contradictory investment reports being churned out daily by the asset management industry, institutional investors could be forgiven for feeling confused and bewildered.

Those asset managers who have been busily launching new liability-driven investment (LDI) products to great fanfare in the UK institutional market shouldn’t hold their collective breath in fevered anticipation of a flood of new mandates.

A recent survey of 50 fund managers by consultants, Hymans Robertson, shows that institutional investor demand for passively-managed mandates increased last year. Should we be surprised?

Doing the rounds of investment conferences in the UK and sometimes in continental Europe usually reminds me of the movie Groundhog Day, in which a hapless Bill Murray wakes up every morning to find himself forced to relive endlessly the events that happened the day before.

The collapse of three high profile investment operations outsourcing ‘marriages’ last year has given the asset-servicing industry pause for reflection.

Will registration with the US Securities and Exchange Commission (SEC) help or hinder those hedge funds seeking institutional clients?

Go east for equities is the end-of-year advice from asset managers who are not wildly enthusiastic about the prospects for decent returns from US and European stock markets.

It is observed that Chinese investors, both institutional and retail, play the market only to make a quick return. They regard mutual funds as stocks to be bought low and sold high.

A recent survey by the Bank of New York (BNY) revealed that going forward, branding will be emphasised by asset managers striving to differentiate themselves in a crowded marketplace. What’s new about that, you might ask? Brand has always been central to the sales message in the retail investment arena.

Just when pension fund trustees were getting comfortable with core-satellite asset allocation and entrusting the salvation of their underfunded schemes to a swelling army of specialist managers, along comes a survey to shake their faith in active management.

Only ten minutes after the announcement that London will be holding the 2012 Olympic Games, press releases regarding the economic impact on the city and those stocks that could perform better as a result were sent to every editor’s inbox across the capital.

A rather surprising finding has emerged from a survey by JPMorgan Asset Management of the investment practices of 120 of the largest 350 defined benefit plans in the US.

It would seem the lingering ghosts of the last bear market are scaring off already wary investors.

Heavy financial losses combined with allegedly misleading product information have led investors to form a stubbornly negative perception of the industry.

Can a company reconcile the needs of its shareholders and stakeholders when adopting principles designed to promote corporate social responsibility (CSR)?

Considering the high fees, low transparency and disappointing performance of late, it’s a wonder that institutional investors continue to pour money into hedge funds. Just as surprising is the tendency for investors, particularly newcomers to alternative assets, to opt for funds of hedge funds that carry an extra layer of management charges without promising any greater bang for their buck.

If you’ve been investing in value stocks since the technology bubble burst in early 2000, you would be forgiven for wearing the occasional self-satisfied smile. For according to the Global Investment Returns Yearbook 2005, published by London Business School (LBS) with ABN Amro, value stocks defied the gruelling bear market from 2000-02 to deliver positive returns over the last five years.

In 10 out of 17 countries surveyed, value stocks registered annualised absolute returns ranging from 3 to 13 per cent over 2000-04.

“Fund managers are going to have to work hard for their supper.” So warned Tony Broccardo, chief investment officer of F&C Asset Management recently.

Forecasting that low equity market volatility would spell another year of unexceptional performance in 2005, he said asset managers would have to exercise their stock-picking skills in order to generate excess returns.

Should hedge funds remain unregulated? The debate has been intensifying ever since the collapse of Long Term Capital Management (LTCM) in 1998 concentrated the minds of regulators and investors on the potential for such events to trigger a systemic financial crisis.

Increasing institutional participation in hedge funds over the last few years has led to calls for rules requiring greater public and private disclosure of information by these vehicles.

Does anyone really have the interests of the investor at heart? The findings of a recent report from Morningstar would make one wonder.

Welcome to your new improved FT Mandate

Welcome to your new-look FT Mandate! After more than five years as a fortnightly publication, we felt the time was right to ring in some changes.

FT Mandate has been refashioned as a bigger, brighter monthly magazine, filled with more views and interviews covering every aspect of the global institutional investment arena.