Once viewed as a quirky “alternative” investment by many, real estate is increasingly being seen as a mainstream asset class, with institutional investors testing it out for the first time and new real estate vehicles coming on to the market. Having been talked up for the past two years by property fund managers and property enthusiasts in the media, a new wave of interest appears to be focusing on the asset class.

Mortgage-backed bonds are being shunned by Scandinavian and Dutch investors on the grounds they are “too complex”. Although the Danish pension fund ATP has announced an investment of up to €1bn in the securities, other northern European investors remain cautious.

UK consultant Lane Clark & Peacock (LCP) is the latest gamekeeper to turn poacher, embarking on a controversial move into the investment management market with the launch of a range of multi-manager funds.

LCP’s product, LCP Simplify, will use nine underlying asset managers, including Barclays Global Investors, Deutsche Asset Management and ironically, a fellow consultant with a multi-manager arm, Russell.

Worldwide investment in alternative asset classes is nearly 40 per cent higher than two years ago, but trends are changing. Most notably, proportionally less money is flowing into long-short hedge funds, the most widely used hedge fund strategy.

The Irish funds industry has passed the $500bn (e387bn) milestone after funds domiciled there grew by a massive 30 per cent over the last year, with equities leading the growth spurt.

British balanced managers are shunning UK stocks, despite strong performance from the asset class during the third quarter of the year.

UK equities are being dropped in favour of a more international spread within balanced pooled funds, according to research from Russell/Mellon Caps.

Customised benchmarks are the strongest growth area for index provider Standard & Poor’s, further proving that investors’ strategies are becoming increasingly complex and bespoke.

Northern Trust’s European multi-manager division has become the latest fund house to venture into high-alpha products. Alongside fund managers such as F&C Asset Management, Northern Trust Global Investments is attempting to meet pension fund demands for products that match their liabilities more exactly.

ABN Amro has bowed out of the domestic custody business, selling its operations to one of the US custody vultures Citigroup. The US giant adds $243bn (e188bn) in assets to its existing $7500bn.

Kas Bank, the niche custodian that believes value added services will soon be as important as core services in terms of income streams, is putting its improved financial results down to growth in commission income.

Germany, France and Italy have witnessed the increasing influence of asset management consultants, challenging the old-school style of doing business.

“Uninformed, unreceptive, inflexible and unwilling to give creative money managers a fighting chance.” That is the view of typical assetmanagement consultants, as laid down by the institutional business chief at an up-and-coming European fund house.

Admittedly, he had had a drink or two, was in high spirits over lunch and was referring inparticular to the perceived reluctance of consultants to make efficient allocations to alternative investments.

But this is unusual to say the least. Most of London’s tight-knit asset management community does not even like to criticise the middlemen in private, just in case word might leak out, and their hard-fought position on buy lists becomes threatened.

Tony Broccardo, chief investment officer of the newly formed F&C Asset Management, tells Henry Smith of the firm’s plans for pan-European and Asia-Pacific domination.

F&C Asset Management has set its sights on becoming a leading manager of global tactical asset allocation (TAA) mandates in Europe.

Following a headline-grabbing merger with Isis, which more than doubled total assets under management to €170.1bn and turned F&C into a top 10 manager of European pension assets, Tony Broccardo, chief investment officer, is confident of the firm’s ability to win a sizeable share of the growing TAA market.

Underperformance has forced the New York City Retirement Systems to query their strategy, with the five boards deciding on greater diversification of assets. Even hedge fund investment is being considered as part of the reorganisation, reports Paula Garrido.

Nathalie Boullefort-Fulconis, Axa IM’s head of global institutional business, tells Henry Smith how the insurer is benefiting from the expanding girth of individual French mandates.

Axa Investment Managers was among 21 fund houses to be awarded €16bn in investment mandates by the French Fonds de Réserve pour les Retraites (FRR) in April. The French-based fund manager, which runs €329bn of total assets, won three equity mandates and a bond brief worth €2.12bn in the recent FRR public auction.

European markets have continued to show impressive resilience at a time when some remain sceptical of their ability to withstand the knock-on effects of a more bearish US rates outlook. However, many of the widely expected US rate hikes have been discounted by markets. Of more significance going forward is how much US interest rates will have to increase by.

The near-term evaluation of equity market return prospects – or for returns of most assets, for that matter – tends to be dominated by the risk side of the equation. Risk drives market returns more in the near term, while underlying economics drive returns more in the long run.

The task for investors interested in next year’s returns is principally about weighing the risks and determining which are priced.

The strong performance of Latin America in recent months has taken many investors by surprise. After a lacklustre performance for most of 2004, the MSCI Latin America index jumped 17 per cent in dollar terms over the third quarter with a range of 4 per cent for Mexico to 28 per cent for Argentina. Brazil rose 17 per cent.

Asia remains the world’s strongest growing region and buoyant domestic savings translate into high regional liquidity. Following recovery in Japan, the US and Europe, external demand for regional exports is robust. However, domestic demand is less strong, especially in South Korea.

There have been a number of comments of late by Asian central bank officials (most recently by Joseph Yam of the Hong Kong Monetary Authority and Zeti Akhtar Aziz of the Malaysian central bank) indicating that no change should be expected in their respective currency policies at any point in the foreseeable future.

The Irish National Pensions Reserve Fund (NPRF) is up 3.3 per cent for the year to date, despite a dip of -1.1 per cent in the third quarter of 2004.

The €10.7bn NPRF, established in April 2001 to provide partial funding of Ireland’s pension costs from 2025, returned 12.8 per cent last year.

The California State Teachers’ Retirement System (CalSTRS) announced in July its second consecutive year of positive performance with a 17.38 per cent return on investments for the 2003-04 financial year.

Christopher Ailman, CalSTRS chief investment officer, put the performance down to being overweight in US and non-US equity from the start of the year.

The Second Swedish National Pension Fund (AP2) is seeking between three and seven asset managers to run global equity portfolios. Each manager will be tasked to outperform the MSCI World Index (Swedish krona) by 3 per cent. The size of each mandate will be between $150m (e117m) and $700m.

While quantitative analysis plays a part, of equal importance to Northern Trust’s European multi-manager team is whether a prospective fund manager is enthusiastic and imaginative – corporate drones needn’t apply. Interview by Roxane McMeeken.

An increasingly recommended method for lengthening the bond portfolio is the use of swaps. But, as John Finch explains, many trustees lack the education to understand them.

A host of regulatory reforms as well as an immature pensions system means Germany is uniquely attractive to domestic and foreign investment managers. Yuri Bender reports.

To maintain current living standards after retirement, today’s young Germans will need to rely more heavily upon privately funded pensions than their parents, and will hence need to accumulate significantly greater capital amounts, says Dirk Popielas.

Exchange traded funds offer German institutions numerous benefits, namely that they are easy to trade, transparent, flexible and low cost, says Thomas Meyer zu Drewer.

Read the most recent writings of Europe’s foremost researchers and consultants and a common theme emerges – there is a new phenomenon sweeping Europe and it is called sub-advisory, outsourcing or white labelling. Behind this growth is the need for financial institutions to focus on their core competency – and become asset managers or asset gatherers, and find partners to help fill product or capability gaps.

FT Mandate’s fund of the month combines fundamental screening models, technical analysis and behavioural finance – something unique in Germany. Henry Smith explains.

Too many pension funds are paying well over the odds for currency trades due to a lack of oversight. Roxane McMeeken explains.

Neil Mellor examines the prospects for a currency regime change in light of the Chinese central bank’s decision to raise interest rates.

The ongoing appeal of inflation-linked bonds is less a fear of inflation and more the need for better asset liability management and risk reduction. Gerry O’Kane explains.

With euro inflation-linked bonds clocking up five years on the market, Jean-François Borgy assesses whether they allow a more accurate forecast of future real rates and inflation.

With revenue streams from core domestic custody on the wane, value-added services are increasingly being viewed as pivotal to profitability. Roxane McMeeken explains.

In order to foment the creation of a single European capital market, Euroclear and Clearstream are offering platforms that improve efficiency in the settlement process. Paula Garrido reports.

Crédit Agricole Investor Services has developed an IT tool called Cloning which allows for the globalisation of management and administration of assets belonging to varied legal entities. Olivier Storme and Pierre Oger explain.

Winning of e1.5bn Frank Russell global bond mandate gives Morgan Stanley top billing for business won from multi-managers. Henry Smith reports.