Goldman Sachs Asset Management is gearing up for a more aggressive assault on the sub-advisory markets of the UK and northern Europe.

The firm has poached David Curtis from Merrill Lynch Investment Managers to spearhead sub-advisory sales operations in the region’s underexploited insurance company sector .

When engaging the services of a transition manager, many investors look only at commission fees and fail to take account of the larger implicit costs associated with a transition management transaction.

According to Simon Hutchinson, European transition management strategist at Northern Trust Global Investments, pension schemes and other institutional investors are increasingly seeing the benefits of employing the skills of a transitional manager to meet fiduciary, budgetary and regulatory needs related to the implementation of structural changes in their portfolios.

The trend among large internally managed pension funds to outsource asset management is evolving from simply awarding specific mandates towards establishing stronger partnerships with investment managers.

The pricing of illiquid instruments is one of the toughest challenges facing valuers of hedge fund portfolios, according to a third of respondents in a global survey of hedge fund investors, managers and service-providers.

Concerns from pension fund trustees and investment managers at the growing weightings of large blue-chip stocks in major UK equity indices has prompted FTSE International, the global index provider, to launch a series of UK capped indices.

Rising crude oil prices have translated into positive returns for investors with exposure to the energy sector. But the volatility attached to energy and other commodities sectors is scaring most funds away from these investments.

Hedge funds and asset managers looking to capitalise on high market volatility are driving up global foreign exchange trading volumes, according to Greenwich Associates.

Can a French private equity outfit tailor itself to the tastes of UK consultants?

Towards the top end of the Champs Elysées, nestled between the eclectic mix of patisseries, record shops and lingerie boutiques, close to the George V metro station, lies no. 73, a hub of Parisian private equity activity.

Speculation regarding an imminent Chinese currency revaluation is growing. But a key barometer – the yen – is unconvincing. Simon Derrick explains.

With membership rising and liability profiles diverging, the Greater Manchester Pension Fund’s long-term strategy focuses on diversification and meeting set benchmarks with the aid of its three external managers, writes Paula Garridoy.

Nicola Romito, head of Monte Paschi Asset Management, tells Henry Smith of his firm’s plans to develop and diversify its institutional investment business internationally.

Monte Paschi Asset Management (MPSAM) might not be the biggest investment house in the world, but the Milan and Dublin-based subsidiary of Banca Monte dei Paschi di Siena, the world’s oldest bank, has been beefing up its arsenal of products in order to mount a targeted assault on the European institutional market.

Of the firm’s €37bn of assets under management, just over half is run for institutional investors. Some €10bn is insurance assets, €4bn is corporate and pension fund money and €6bn is managed for private clients.

MPSAM recently purchased a minority €25m stake in a new London-based institutional investment firm, TrinityCapM, which has just launched an institutional hedge fund – Global Target Plus - and an enhanced cash fund – Global Enhanced Liquidity.

European stock markets are dull. The rate of economic growth is likely to slow, probably remaining at a lowly annual 1-2 per cent over the next few years; 3 per cent growth would be a welcome bonus.

There is extensive price deflation around and several companies have no pricing power. It is unlikely that the US economy will provide much impetus, either.

This pace is reassuring for a stock-picking fund manager. European equities are fairly valued and they might return about 5-10 per cent per annum over the next 10 years. The winners will be investors who drill down to find the companies that will outperform.

Recently US bond and equity markets have remained volatile on mixed data in the US. For example, March home sales data showed the fastest rise in 11 years (bull); the next day US durable goods orders for March fell by 2.8 per cent, the largest drop since 2003.

Combine this with weak retails sales, the large decrease in housing starts, plus significantly higher than expected core CPI (0.4 per cent) and you have triggered a bearish reaction in equity markets.

Sentiment toward Latin American markets is being buffeted by two competing influences. The first is the external environment that has clearly become far more challenging for the region. The second is the domestic economies where the news is far better than anyone could have hoped for; economies have rarely performed better and are benefiting from structural improvements.

Externally the chief concern is US interest rates. Seasoned Latin American investors remember how the Fed’s monetary tightening in 1994 helped precipitate the Tequila crisis in 1994-95 and draw the parallel between then and now.

There is no shortage of issues for investors to consider in Asia these days. Political tensions have risen in the region, and economies continue to wrestle with fundamental concerns of higher dollar interest rates and firm energy prices.

Investor flows to Asia have slowed down, as the attraction of the “carry trade” diminishes with funding costs rising. Relative valuations continue to tilt global investors’ attention to Asia, but the skittish nature of the region’s domestic investors has many markets struggling to maintain gains for this year.

Many markets in the region still offer opportunities as valuations are attractive and supported by improved corporate cash flows.

The trend in liability-driven investment strategies is expected to strengthen as investors seek to match their assets more closely with their liabilities. Paula Garrido reports.

During the past decade pension funds and other institutional investors have been moving away from peer group comparisons and adopting scheme-specific benchmarks. For many, this move was the first step towards the implementation of liability-driven investment (LDI) strategies, an approach that is becoming more and more popular across Europe as regulatory requirements and declining funding levels put extra pressure on pension funds.

Alex Fletcher outlines the benefits of open architecture for insurers struggling to perform given complex market conditions.

International equity mandates were the most targeted in manager search activity last year, data from Mercer shows. Henry Smith reports.

The $8.2bn (€6.4bn) Los Angeles City Employees’ Retirement System (Lacers) is looking for candidates to manage a $175m mandate investing in US small-cap value equities, as part of a review of the fund’s investment strategy.

With Fund Forum 2005 fast approaching, Henry Smith assesses industry opinion on the trend towards specialisation and the implications this has for small and large asset managers.

The need for institutional fund managers to have a clearly identifiable alpha proposition will fuel increasing specialisation and fragmentation of the global asset management industry, according to Wolfgang Mansfeld, executive board member at Union Investment in Germany.

He says: “The model of very big structured organisations is declining. There will be spin-offs from established multi-asset firms which are already separating and offering more flexibility to their in-house investment teams in order to retain talent.”

Although hedge funds and quant shops were the first to embrace algorithmic trading, all projections point to an explosive future growth at a wider level. Roger Aitken looks at its evolution.

Algorithmic trading – it might not trip off the tongue but it has been attracting increasing attention and could be on the verge of crossing into a glorious new era.

Algorithmic trading systems not only result in best execution but can yield some useful cost benefits for users. Roger Aitken reports.

The use of algorithmic trading systems can result in lower trading costs compared with alternative trading methods used by the buy-side, according to new research.

A survey by ITG, the agency broker, revealed that up to 11 basis points (bp) can be shaved off trading costs. However, ITG warned that users should choose their algorithmic provider carefully and that performance levels between brokers can be far from uniform, especially as order sizes increase.

Algorithms enable traders to delegate the monitoring and reaction to market data updates to a computer, leaving them free to work orders that require human intervention. Tom Middleton and Atchen Nathan report.

Algorithmic trading seems to have become the must-have for the buy-side for 2005, with articles appearing in national mainstream newspapers and specialist publications. Algorithms are a sequence of rules designed to solve a problem: in the context of trading, they enable a human being to delegate the scheduling and execution of an order to a computer program, thus automating much of the trading process.

The range of execution strategies is wide but choice should depend on order difficulty. George Sofianos and Peter Sheridan outline a framework that could help.

One of the challenges buy-side traders face is how to choose from a large number of execution strategies. The remarkable growth in algorithmic trading and the proliferation of different algorithms increased the challenge. Buy-side execution choices range from the traditional high-touch single-stock executions to algorithmic trading and direct market access (DMA) (see FIGURE 1 download).

FIGURE 4 (see download file)shows one possible mapping of orders into strategies. As we move from easy to difficult orders (cubes 1 to 8), there are fewer choices and broker-dealer capital becomes more important. The buy-side trader’s first task is to split orders into low-urgency and high-urgency, as discussed above.

Low-urgency trades (especially in large-cap and mid-cap stocks) are well suited to low-touch DMA and algorithmic trading. Low-urgency, small-size orders (less than 0.1 per cent of ADV) should consider small-order spread-capture algorithms like Goldman Sachs’ Piccolo algorithm.

When comparing providers of algorithmic trading it is important to look for high quality data sources, robustness of statistical techniques and a deep understanding of the marketplace.

The use of derivatives has deterred UK and European pension funds from implementing GTAA strategies but that has begun to change. Simon Hildrey reports on developments in the GTAA landscape.

European pension funds’ search for strategies that can add alpha has led to a growing interest in global tactical asset allocation (GTAA), particularly in the past two years.

Carolina Minio-Paluello, executive director and portfolio manager of the quantitative resources group at Goldman Sachs Asset Management (GSAM), says that because GTAA strategies make use of derivatives, it has taken a number of years for UK and some European pension scheme trustees to become comfortable with awarding such mandates.

A GTAA program can be expected to increase returns over and above those of strategic asset allocation.

Dr Peter Higgs reports on how the GTAA market has changed, mandate design and funding options.

Tactical asset allocation (TAA) has historically involved tactically increasing the exposure of an institutional portfolio – for instance, pension funds or insurance companies – to markets that the TAA manager’s research indicates are relatively attractive and reducing its exposure to markets that are less attractive.

Andrew Dales demonstrates how restrictions imposed on an investment strategy can reduce the transfer coefficient and therefore hurt investment performance.

Beating a benchmark consistently is difficult, as the history of active management shows. However, asset allocation overlays seem to generate more consistent performance than typical long-only managers.

So, why have asset allocation overlays performed so well relative to long-only asset allocation approaches? Are their managers that much more skilled than their mutual fund counterparts? Can this performance difference be expected to continue?

Luxembourg-based Sicav attributes its success in the global equities sector to the steadfast application of the theories of Benjamin Graham, the founder of value investing. Paula Garrido explains.

Deals between NYSE and Archipelago as well as Nasdaq and Instinet.

Luxembourg-based investment funds enjoyed net asset growth of 25 per cent during 2004, rising from $1199.7bn (€931bn) to $1500.3bn according to research by Fitzrovia International, a Lipper company.

With a clutch of hedge fund administrators having been snapped up by global players in recent years, Roger Aitken assesses the various attempts to achieve economies of scale.

With subscriptions to hedge funds predicted to rise sharply, administrators of these alternative investments are bullish about their future business prospects. According to a white paper from consultancy Acito, Quirk & Casey published last September with the Bank of New York, US institutional investor capital in hedge funds will surge to $300bn (€233bn) by 2008 from around $60bn today.

HSBC Securities Services is working hard on its strategy for growth in Europe and further afield but is reluctant to enter the oversupplied US market, writes Roger Aitken.

HSBC’s acquisition of the Bank of Bermuda in 2003 has propelled its securities services arm closer to the big league players of custody and fund administration. The volume of alternative investments serviced by HSBC was increased by $88bn with the takeover.

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