Forty-three per cent of schemes in Holland were employing LDI, compared with 21 per cent in Canada, 19 per cent in the UK and 17 per cent in the US.
If investment consultants and fund houses are not alarmed at these findings, perhaps they ought to be. Over the last three years, assets managers have staged countless presentations and seminars on LDI for pension schemes and their advisers. Clearly, these efforts to educate have achieved less than the desired effect.
Patrick Disney, head of SEI’s European institutional business, said the survey results showed that organisations around the world “are in the early stages of understanding the benefits that LDI can provide”, a comment which suggests that either investors need much more time than anticipated to gain a full understanding of how LDI can be used or asset managers should be rethinking how they put their message across. Indeed, the poll also found confusion and a lack of agreement as to how an LDI strategy could be defined. Dutch respondents, who showed the most advanced understanding of LDI, defined it as a strategy in the context of the risk management of the entire portfolio, while most other respondents saw it as a product defining it as “matching duration of assets to duration of liabilities”.
If the SEI study showed that purveyors of LDI “products” or “strategies” must work harder and smarter to win mandates particularly from UK pension funds, a glimmer of hope was offered in a report by consultants Hymans Robertson. It noted that 2006 marked the first time that all the talk about LDI was matched by a substantial inflow of assets into pooled LDI funds. Estimated assets under management for UK pension funds in LDI strategies for both pooled and segregated accounts rose from £40bn (€59.3bn) in 2005 to £60bn last year. Hymans Robertson observed that those asset managers who were leaders in the development and launch of LDI pooled funds had gained the most market share.
While asset managers operating in the LDI space might draw comfort from this research, those investment firms currently generating a lot of noise about their newly-launched 130/30 equity funds could interpret the findings of the SEI report as a warning to their fledgling sector.
It is probably safe to say that six to nine months ago, investors were scarcely aware of this new breed of long-short strategy. Now every investment journal is carrying articles which explain 130/30 funds in great depth and every asset management conference is holding presentations and plenary sessions on what has become the hottest topic of 2007.
FT Mandate is not immune to the hype and our coverage of 130/30 funds reflects the interests of both product-providers and investors. A special report on 130/30 funds in the May issue is followed this month by a special report on global equity which, surprise, surprise, features more in-depth treatment of a subject that suddenly everybody wants to talk about.
But three or four years from now, after umpteen presentations, seminars and learned articles in investment journals, will the product-providers be satisfied with the volume of assets they have attracted into their 130/30 funds? Will they be pleased if only a fifth of UK pension funds have awarded them mandates? Will they be sanguine if, four years hence, a report reveals that investors lack a complete understanding of how a 130/30 fund works or feel confused about the role played by the strategy in their portfolios? Maybe product-providers see nothing unusual in waiting an age for assets under management in a particular strategy to reach a critical mass.
If so, fine, for many consultants remain to be convinced of the merits of investing in 130/30 funds. They ask, not unreasonably, why a client wouldn’t just add a hedge fund to their long-only exposure.
Hedge funds? Now there’s another unfinished symphony.
Forgive me for being cynical, but are these the same consultants who treated hedge funds with scepticism for years, deterred by their complexity and the occasional high-profile blow-up, and who have belatedly embraced expensive funds of hedge funds vehicles?
The hedge fund hype continues, often under the banner of so-called “new balanced” mandates. And what is there to show for it? Less than 1 per cent of total UK pension fund assets are allocated to hedge funds and funds of hedge funds, according to Hymans Robertson. Are alternative asset managers happy with that?
Henry Smith, editor
henry.smith@ft.com
