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While the giant American pension systems are refuting South Korean claims and keeping faith with US treasuries, European schemes are keeping their own counsel, reports Nat Mankelow.

— Michael Maubousin, Legg Mason Capital Management’s

Credit spread products and large-cap equities are looking particularly attractive, according to an optimitstic prognosis from the US supergroup. Martin Steward reports.

Intech, the specialist quantitative equity manager for institutional investors, presented research at the NAPF [UK National Association of Pension Funds] Investment Conference in Edinburgh that challenges the widely accepted view that average active managers consistently underperform equity indices.

— Paul Myners, Personal Accounts Delivery Authority (Pada)

The investment options under Personal Accounts, the government’s complementary pension scheme due for launch in 2012, are likely to be dominated by passive strategies in order to keep costs down, according to Paul Myners, chair of the Personal Accounts Delivery Authority (Pada).

— Simon Walker, BVCA

The British Private Equity and Venture Capital Association (BVCA) used the publication of its report into The Impact of Private Equity as a UK Financial Service 2006/7 to warn that the benefits its industry brings to financial services and the broader economy could be jeopardized if the government does not address uncertainty over taxation.

The transfer of the Rank Group’s £700m (€919bn) pension scheme to Goldman Sachs will have little effect on its asset allocation in the short term.

In the February 2008 issue of FT Mandate, in the article entitled "Convergence Ahead," the DTCC's European subsidiary was mistakenly referred to as 'Euroclear.' The correct name for the business is 'EuroCCP'.

— Stewart Hay, Standard Life Investments

The challenges faced by private equity groups as the credit contraction bites do not appear to have affected institutional investors’ appetite for the asset class.

Financial Risk Management (FRM), a $14bn (€9.82bn)fund of hedge funds, is launching a new business, FRM Capital Advisors (FCA), which aims to raise $1bn this year to provide seed capital for early-stage or start-up hedge fund managers.

Hedge funds outperformed the major traditional benchmarks through volatile market conditions last year, according to data from hedge fund index providers Credit Suisse/Tremont, HFR, Greenwich Alternative Investments, RBC Capital Markets and Eurekahedge.

— Dawid Konotey-Ahulu, Redington Partners

A controversial discussion paper on proposed changes to the accounting standards applicable to UK pension funds has provoked fierce debate in the industry.

— Frits Bosch, Bureau Bosch

Frits Bosch says fiduciary management is taking off in the Netherlands, offering opportunities for third-party asset managers.

The 282 institutions spread across 12 European countries which responded to the JPMorgan Alternative Asset Survey 2007 are set to plough almost €104bn into alternative asset classes over the next two to four years.

BNP Paribas and ETF Securities have both launched commodities investment products offering diversity along the futures curve dimension in recent weeks.

Sir David Walker recently published his final report and guidelines on private equity disclosure and transparency, following on from his Working Group’s consultation paper from July this year.

— Tony Worth, Avon Pension Fund

Many of the 90-plus local authority pension funds which have yet to allocate to hedge funds are waiting for Avon’s fund of funds investment to fail, according to Tony Worth, investments officer at the £2.2bn (€3.2bn) Avon Pension Fund.

— Toby Nangle, Barings'

Baring Asset Management is pushing the 130/30 portfolio management concept into the fixed income space with a pioneering mandate from CalPERS and the first white paper on the subject, 130/30 Fixed Income Investing: Relaxing the long-only constraint.

Mumbai-based fund management group, Ask Investment Managers, is to set up operations in the UK in a bid to capitalise on institutional opportunities in the Europe.

— Gael de Barmon, founder and president of NPE Asia

NPE Asia, a subsidiary of French-based Natixis Private Equity, is gearing up to launch a new fund later this year that will allow pension schemes and other institutional investors to access mainland China’s potentially lucrative private equity market.

The high volumes in the credit derivatives market this summer provided the first major acid test for the automated credit default swap (CDS) processing systems implemented by financial institutions in response to regulatory pressure over the past 18 months. However, the industry is giving mixed messages as to how they fared.

— Martin Raiser, World Bank

The pace at which Ukraine’s capital markets will develop depends on pension reform and increasing investor appetite, but political stability and tighter regulation remain crucial to its progress, an event held at the London Stock Exchange (LSE) last week concluded.

Better risk management and co-ordination from the exchanges and regulators means a repeat of the 1987 stock market crash is less likely, market makers at an industry event in Europe believe.

The Alternative Investment Management Association (Aima) has created a new steering committee dedicated to improving the engagement of the hedge fund industry with the institutional investor community.

The Committee of European Securities Regulators (CESR) has approved, in principle, the classification of hedge fund indices as financial indices for the purposes of the Ucits III Directive, clearing the way for them to be held as securities in Ucits funds.

The seven-year bull run in global property stocks stalled in Q2 2007, in part due to the fall out from the US subprime mortgage market, according to the latest Quarterly Global Property & Reit report from Standard & Poor’s Index Services.

— Roger Yates, CEO Henderson Global Investors

The response by third-party fund administrators to some of the new investment products launched by asset managers has been “lamentable” according to Roger Yates, chief executive officer of Henderson Global Investors.

Apax Partners, Europe’s second biggest private equity group, has hit back at the industry’s critics in its 2007 report on the latest global private equity environment rankings from the Economist Intelligence Unit, Private Equity in the Public Eye.

— Andrew Smith, Goodman Property Investors

Product developers are responding to investors’ appetite for non-domestic property by looking ever further afield for opportunities.

— Julian Knight, Global Cool’s chairman and CEO

The worlds of international entertainment events and environmentally-sustainable investing come together in a new product from Global Cool, the UK charity dedicated to a 10-year campaign to reverse global warming.

The huge volume of cash that has hit large buyout funds in recent years is the biggest risk to their performance, according to 88 per cent of the Limited Partners (LPs) surveyed for Coller Capital’s latest biannual Global Private Equity Barometer.

— Chris Taylor,DDQ

Dawnay Day Quantum has launched two structured products offering exposure across hard and soft commodities with 90 per cent capital protection, designed for institutional investors making their first investment in the asset class.

There is strong evidence that good corporate governance positively affects share value, according to a paper presented at the recent Citi Investment Research Quantitative Conference 2007 by Luc Renneboorg, professor of corporate finance at Tilburg University.

— Stephen Vineburg, First State

First State Investments is targeting growing European institutional appetite for infrastructure investment with the launch of a new fund and dedicated London-based team.

Silver Street Capital, a fully-diversified multistrategy fund of hedge funds strategy designed for institutional investors, has made a remarkable debut by picking up a $500m (€368.9m) discretionary mandate from a single undisclosed allocator.

April will see another big-name hedge fund manager list a closed-ended vehicle on the London Stock Exchange. However, Fortune Asset Management’s flagship Market Wizards Fund will be the first such vehicle investing exclusively via managed accounts, and according to chief executive officer Simon Hopkins, this addresses many of the concerns institutional investors have about the sector.

The wall of institutional capital coming into hedge funds will lead to more index and replication products, forcing fund of funds managers to come up with a compelling alternative, according to Stephen Smith, head of funds and alternative solutions with Credit Suisse.

Bonds continue to be the asset class of choice for European institutional investors, although the proportion of schemes investing in non-traditional assets such as private equity and hedge funds is rising, a survey has found.

— Marsh: only 18 local brokers are well run

China’s growing fund management industry is generating a need for wholesale brokerage which in turn is fuelling opportunities for financial software firms to service a potentially lucrative new market.

Nat Mankelow attended a recent industry gathering on derivatives to find that many are touting the asset class as a natural move for institutions looking for more risky strategies.

Nat Mankelow reports on how asset/liability mismatches are pushing institutional investor demand for complex credit investing strategies such as CDOs and CPDOs.

Pension funds across the globe are continuing to look at commodity investments despite recent declines in returns, according to Barclays Capital.

— Galkin: ABS will allow even small and niche banks to tap international debt

The Russian bond market will host increasingly sophisticated fixed income products as more investors look for value in emerging market debt, senior issuers forecast.

Traditional buy-side firms are divided over whether they should upgrade their existing order management systems (OMS), retain their existing OMS or make an execution management system (EMS) investment, according to London-based investment consultancy Investit.

— Haynes: system response to client demand

With the launch by Investment Technology Group (ITG), the US technology-based equity trading services group, of Posit Now, the continuous intraday crossing system for equities into Europe, volume growth in so-called ‘dark liquidity’ is expected to accelerate from current levels during 2007.

— Feng: rising pressure to reduce commissions

Japan’s largest and most influential institutions are leading a “long-awaited push” into electronic equity trading with a strong move into algorithmic trading strategies, according to research by Greenwich Associates.

As the interest in property has risen, so has the importance of diversifying within portfolios. Tim Cooper reports.

Ted Sotir, the amenable co-head of Europe at Goldman Sachs Asset Management, is no slouch when it comes to assessing profitability. The former American college footballer, who was instructed to lose weight before joining the funds unit, in order not to intimidate staff, is known to pull up his business teams if their margins are too narrow.

— Altmann: ‘lemming-like rush to bonds’

A leading UK consultant has berated the country’s pension funds for not adapting to new ways of investing to boost returns and eliminate deficits.

A large number of pension funds in the UK and Europe are starting to look at investing in infrastructure, with many going out to tender for it or making appointments for the first time.

The investment industry has started to acknowledge that the implications of extra-financial issues on the market and on long-term corporate performance cannot be under-estimated any longer.

— Au: NCSSF looking to global custodians

At a time when China is lurching from one financial scandal to another, both Northern Trust and Citigroup have won the first global custody mandates from a Chinese pension fund.

Asset managers have come under fire for the fees they charge for liability-driven (LDI) and alternative investments.

— Francotte: code is a means of delivering greater access and transparency

A significant “first step” towards an integrated, efficient and transparent post-trading market in the European Union has been taken with the introduction of a new ‘code of conduct’ for clearing and settlement.

— Moro: the process of approval was slow

The first Spanish-domiciled hedge fund launches are imminent, according to Carlos Arenillas, vice president of the Spanish securities market regulator, the Comisión Nacional del Mercado de Valores (CNMV).

— Heywood: family offices are more probing

Institutional investors pay less attention than family offices to the risk profiles of hedge funds they are looking to invest in, according to Neil Heywood, sales director at hedge fund managers, Armajaro Asset Management.

European financial institutions have to work much harder to implement straight-through processing (STP) initiatives in their back and middle offices, according to a survey released during the 2006 Sibos conference held in Sidney this month.

— Orpin: it is still far too costly to go down the full buy-out route

The premiums being charged by insurance companies to take on the liabilities of corporate pension schemes which have closed to new members are “excessive” and may stifle buy-out activity, an investment consultant has warned.

— Okita: Chinese regulator ‘very supportive’

A sharp recovery in the Chinese domestic stockmarket in 2006 has prompted a previously reluctant securities regulator to approve the country’s first Qualified Domestic Institutional Investor (QDII) fund.

Lehman Brothers and Hua An Fund Management were recently given the go-ahead to launch a new foreign currency-denominated fund which allows Chinese investors to invest in foreign assets for the first time.

The European socially responsible investment (SRI) market has grown by 36 per cent since 2002 to over €1000bn of assets under management today.

— Preuss: we are only scratching the surface of potential business

Pension schemes, particularly in Europe, should communicate more effectively with exchanges to redress the still “wide variance” in the understanding, use and application of derivatives products in pension fund portfolios.

Stock exchanges in Europe are “still milking” their members and clients despite some recent moves to reduce the level of trading tariffs across the core products they offer, according to a UBS banker and representative of the London Investment Banking Association (Liba).

Henry Smith and Yuri Bender speak with Credit Suisse veteran Bob Parker about hedge fund product and distribution trends and the firms recent internal re-shuffle.

Following the recent re-branding of Credit Suisse as “one bank” and the simultaneous restructure, with the asset management division now a fully-fledged unit, rather than a sub-section of investment banking, Bob Parker has been talking to clients about products and distribution channels.

— Beazley: small and large organisations want to resemble one another

The institutionalisation of the hedge fund sector is changing the face of the asset management industry as a whole, as large firms try to compete with the flexible and innovative nature of boutiques.

As trading costs have come down, portfolio trading volumes have risen with the result that investment performance has worsened, according to Bill Miller, chairman and chief investment officer of Legg Mason Capital Management.

Carbon emissions by companies is an important risk factor investors need to take into account when constructing their investment portfolios. As a result of the introduction of different regulations, including the EU Emissions Trading Scheme (EU ETS) in 2005, carbon emissions are now a real financial issue with a real price.

— Colin Harte, manager of the Baring Directional Bond Fund

Under current market conditions, bond investors might want to consider adopting directional strategies that have the potential to make money even when markets fall.

According to Baring Asset Management, as the economic environment becomes less supportive of fixed income assets, using strategies that aim to take advantage of upward and downward market movements by using derivatives and going short could be an attractive option for investors.

Despite disaster recovery programmes having been initiated by many firms following the September 11 terrorist attacks, scenarios for dealing with a failure of key securities market players and intermediaries have not been addressed in most markets and appropriate responses remain to be formulated, a newly published report highlights.

Currency management is a tool no longer used by investors to reduce portfolio risk but an attractive investment choice with potential for alpha generation.

Despite the hype surrounding the use of hedge fund as alpha generation tools, some of the largest institutional investors are still reluctant to make significant allocations to the asset class.

— Peter Irving

Peter Irving, the highly individual founder and chief executive of successful Asian investment boutique, Atlantis, has died, aged 49, in a “boating accident”, in the Solent, off the Southern Coast of the UK. An Atlantis spokesman said the exact circumstances were not yet apparent.

Institutional investors searching for alpha are faced not only with the challenge of choosing the right strategy, but also with the task of identifying the managers who really can deliver. As alpha comes at a premium, investors are showing concern about ending up paying too much for what in practice can be considered as beta.

Pension funds in the UK are overlooking opportunities to add extra return through tactical asset allocation (TAA) as they move towards specialist management.

Despite earning higher investment returns last year, US corporate and public pension funds will have to find more and better sources of alpha if they are to plug their funding gaps and meet future pension obligations.

— Lowe: regulation will make funds look closer at asset/liability mismatch

Regulatory and accounting changes in the US are likely to result in an increased focus on liability management from institutional investors, following the steps of their European counterparts.

Nasdaq has stolen a march on its arch-rival, the New York Stock Exchange (NYSE) by swooping to take a 14.99 per cent stake in the London Stock Exchange (LSE).

Problems arise in investment operations outsourcing deals because of mismatches between the aspirations of the buy-side and the capabilities of the supply-side, according to Ken Back, managing director, EMEA, Global Strategic Solutions at Citigroup Global Transactions Services.

US asset management firms are under-spending on client service, despite recognising the contribution the function makes to their profitability.

— Busay: CalPERS portfolio manager helped seed the idea alongside Dr Muralidhar

The California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the US with $200bn (e168bn) of assets, has signed as a client for M-cube Investment Technologies’ AlphaEngine software, a move which endorses the importance of applications that help to evaluate portfolio decisions in a transparent and systematic way for all asset classes.

Suzanne Donohoe, currently co-head of Goldman Sachs Asset Management (GSAM) Europe, is returning to New York in April to become head of GSAM’s North American client businesses.

When choosing alternative asset managers, investors need to check that they are getting what they are paying for, according to Magnus Backström, chief investment officer of Finland’s OP Bank Group pension fund.

— Hopkins: indices are very unstable

Investable hedge fund indices have failed to deliver decent performance for institutional investors who do not realise how unstable an investment structure they are.

Despite continuous discussions in the institutional asset management arena regarding the benefits of liability-driven investment (LDI), the number of pension funds which have such strategies already in place is still small.

The increased issuance of long-dated bonds by different European governments is not enough to meet investor demand for these instruments.

Corporate treasurers are showing increasing interest in yield enhanced funds, despite the growing popularity of money market funds as an alternative to bank deposits.

Hedge fund managers, once preoccupied only with performance, are now just as concerned about the impact that infrastructure, and risk management issues can have on their business.

— Turner: clients want international exposure

Investors’ growing appetite for real estate is being translated into more investment vehicles being launched in the market. Demand for greater liquidity and more transparent investment products has resulted in more assets going into property vehicles such as real estate investment trusts (REITs), a sector that at the end of last year had $425bn (€358.3bn) under management.

Short-term measurement of fund managers’ performance is resulting in fear of taking longer investment positions. As a result, potential longer-term investment opportunities are being left unexplored.

— Fridjonsson: seeking quality growth

The Icelandic Stock Exchange (Icex) has launched a new market catering for mid- and small-caps. Known as isec, the segment is broadly based on the London Stock Exchange’s AIM.

— Haynes: LSE will remain independent

Despite the share price of the London Stock Exchange (LSE) riding 15 per cent higher than when Deutsche Boerse made its proposed 530p-a-share offer a year ago, time might be running out for any deal involving the LSE.

The emergence of enhanced cash funds – otherwise known as liquidity-plus or cash-plus funds – has significantly boosted growth in the cash management industry in Europe alongside traditional money market funds, but has further to go before catching up with the US, new research says.

— Keaney: mandate extends leadership position

The decision by Hermes Pensions Management, a £60bn (€49.9bn) UK-based asset manager, to select the Bank of New York (BNY) to participate in exclusive due diligence with a view to providing investment outsourcing services in the UK comes at the end of another buoyant business year for the bank.

As Omgeo, a provider of post-trade, pre-settlement trade management services, surpassed the $10,000bn mark in processed US fixed income trades via the Oasys trade allocation and acceptance service in the first three quarters of 2005, an increased appetite for automation and efficiency in fixed-income back offices seems to be emerging.

The Chinese mutual fund market is expected to undergo a manager shake-out as large state banks seek to dominate the business by exploiting their wide distribution networks.

— Fuller: MiFiD preparation far from ‘job done’

Despite understanding of the Markets in Financial Instruments Directive having risen in 2005, over 50 per cent of investment firms still have not started budgeting for MiFID technology projects in 2006, a survey reveals.

Growing numbers of institutional investors in North America are using listed and highly liquid equity derivatives for hedging and investing purposes as an alternative to cash equities and to minimise equity trading costs, new research shows.

The overall pensions deficit among 80 major companies within the Fortune 100 in the US is projected to rise 65 per cent by year-end unless market conditions improve and/or company contributions are increased by a significant margin, new analysis reveal.

The choice of F&C Asset Management by Dutch insurance and pensions provider, Achmea to run €1.5bn of its assets in a responsible engagement overlay programme has been hailed as a further endorsement that implementing socially responsible investment (SRI) and corporate governance policy not only follows on from shareholder responsibility towards society, but can also enhance the durability of the investee companies.

Dutch money managers are losing out in their own back-yard to foreign investment houses which now control over 50 per cent of Holland’s €528bn pension fund assets.

Strong equity performance and market resilience in the face of adverse news suggests we are back in bull market territory, although investors remain cautious.

— Gibson-Smith: goal for powerful Europe

The growth benefits of an effective pan-European platform for small- and medium-sized enterprises (SMEs) are estimated at up to 0.6 per cent of the EU’s GDP (or, as much as €56.63bn), an independent study by Oxford Analytica has claimed. Up until now efforts in this direction have been “sub-optimal”, claimed the report.