Institutions Sticking With an Active Approach

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Throughout 2016 and into 2017, there has been no shortage of news coverage on the shift of assets from actively managed to passively managed investments in the wealth management industry. With the heightened focus on investment-related fees and increased skepticism over active portfolio managers’ ability to outperform the market index over the long term, many industry pundits are projecting a massive consolidation of active asset managers in the future, with only the strong and the few able to survive.

Yet at least one segment of the market continues to offer opportunity for active managers: the institutional market.

In fact, our research conducted in Q4 2016 found that institutional investors were reaffirming their commitment to actively managed strategies a maintaining or even increasing their active asset allocation levels despite the uncertain political climate during the latter half of 2016. Continue reading

Institutions’ Growing Appetite for Risk

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The search for higher returns is the leading driver for asset allocation shifts

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The 2016 US presidential election sparked waves of populism and uncertainty. For the financial markets, the possibility of a Trump presidency seemed to cause a risk-on mentality, as his tweets were met with positive market reactions. And even before the Dow Jones Industrial Average surpassed 20,000, institutional investors signaled they were also adding risk. The survey fielding of our US Institutional Investor Brandscape report, fielded from mid-October 2016 to early January 2017, gives us a unique snapshot of the reactions of institutional investors in a distinct period for all of us.

Both pensions and non-profits de-emphasized de-risking as a driver of asset allocation changes this year. While de-risking is less of an issue for non-profits compared with pensions, this finding corresponds to the risk-on market mentality. Importantly, de-risking was the leading driver of asset allocation shifts among pensions in previous years and $1 billion-plus pensions continue to focus on risk. At the same time, corporate defined benefit plans place greater emphasis on the search for higher yield at the expense of de-risking. Continue reading

Stalwart Leadership in a Conflicted World

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The “new normal” catch phrase emerged after the Great Recession, marking a new era in investment management. Predictions of high correlations, muted returns, increased volatility and sustained low interest rates were true for a period. But fast-forward to 2017, and this period seems to have come to an end. Correlations have declined, the Dow Jones Industrial Average broke 20,000, the VIX stabilized and the Federal Reserve raised short-term interest rates in a show of confidence in the strength of the US economy. One could use the term “utopian,” perhaps, for characterization of recent market events.

At the same time, US politics has deeply divided the country across economic, gender, racial, religious and philosophical lines. Trust in political leadership is at an all-time low, and book sales of George Orwell’s 1984 are near all-time highs. Many view the current landscape as a “political dystopia.” Continue reading

Asset Manager Alert: How NOT to Get Dropped by Your Institutional Clients

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The reasons for dropping a manager vary substantially among institutional investors in the US versus those in other countries, according to our new International Institutional Investor Brandscape study. In the UK and elsewhere in Europe, concerns over liquidity far outweigh all other aspects that institutional investors identify when dropping a manager from their lineups. According to the Financial Times*, liquidity issues are of particular concern in fixed income markets, and as a consequence, many asset managers are beefing up the skills and resources on their trading desks to more effectively identify suitable buyers or sellers on the opposite sides of complex fixed income trades.

Second to liquidity issues, European pensions cite lack of communication or responsiveness as a top reason for dropping a manager, signaling the importance of regular outreach and effective service teams in cementing client relationships. Planned shifts in asset allocation, investment team turnover and the desire to reduce fees and expenses round out the top five reasons for cutting a manager in the international institutional market. Continue reading

Not All Institutional Investors Are Alike

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Uncertainty in China. Falling oil prices. Volatility in US equity markets. The Federal Reserve raising interest rates for the first time since 2008. All of these factors converge to create an unsettling environment for institutional investors. As a result, these investors are re-examining their portfolios and reassessing their use of different asset classes, investment products and asset managers. But the needs, perceptions and behaviors of institutional investors vary dramatically by asset size and category, proving the adage that not all investors are alike.

For asset managers serving the institutional market, the need for focus has never been greater. Determining the right business strategy, product offering and competitive positioning is to a great extent dictated by the segment of the market being targeted. Firms can choose to develop a scalable approach for the smaller institutions or pursue the polar opposite with customized solutions for the largest institutional clients. In either case, understanding the forces driving market needs and the factors impacting the competitive environment is critical. Continue reading

Warning: Institutional Investors Express Discontent

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In the institutional market, industry average satisfaction scores are trending downward on many measures this year, which should warn asset managers serving this space.

Investment performance remains a key driver of satisfaction across all segments of the market, particularly the larger non-profits managing $250M+ in assets. Yet additional opportunities avail themselves to asset managers seeking to deepen client relationships beyond the investment performance metrics. A distinctive investment philosophy, strong investment team and attentive service approach can all serve to boost satisfaction levels among current clients. Particular areas of weakness for many firms this year include meeting client expectations with the aspects of investment performance, service and support, product innovation, alignment, and social responsibility. Continue reading

Larger Institutions Drawn to Smart Beta ETFs

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Larger Institutions Drawn to Smart Beta ETFs

Despite the vast array of product offerings and investment solutions available in the institutional market, institutional investors managing less than $1 billion in assets continue to favor two product categories—individual securities and open-end mutual funds—while organizations managing at least $1 billion in assets report higher allocations to separate accounts, commingled funds and limited/private partnerships, evidence of the wider variety of investment strategies these institutions employ. However, one category that has enjoyed substantial growth of late is that of ETFs. In fact, 37% of institutions now use ETFs, up from just 26% two years ago. Continue reading

Inside the Minds of Institutional Investors

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Inside the Minds Of Institutional Investors

Many asset managers targeting the institutional market often joke about their desire for a crystal ball that would provide foresight into the investment strategies that will be attracting the most assets in the next couple years. Armed with this knowledge, firms could then focus their efforts on developing and promoting their capabilities in the areas poised for the greatest growth. While not a crystal ball, our US Institutional Investor Brandscape® report provides a view into the key asset classes and investment solutions that are of most interest as well as the context that explains the factors driving demand for future mandates.

The allocation of institutional assets across asset classes has remained fairly stable over the past year, with smaller institutions concentrating their assets in US equities and US fixed income and larger organizations employing a more diversified approach. Yet we are seeing increased interest in investing in asset classes that offer higher potential return, such as private equity, real estate and alternatives. Continue reading

Institutional Relationships Poised to Grow

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Watering flowers with a watering canOur US Institutional Investor Brandscape® report was released to clients today!  In the full report, we cover the behaviors and attitudes of senior investment professionals across defined benefit (DB) pension plans, and private and public foundation and endowments. This year, we found that institutional investors, particularly those managing smaller asset pools, are less likely to anticipate adding new managers to their lineups in the next 12 months than they were a year ago.

Rather, in welcome news for incumbent providers, both pensions and non-profits report a stronger intention to boost their investments with their current managers or change the mix of investments with the firms on their lineups, suggesting that existing client-manager relationships are stable and poised to grow. Continue reading

Institutions Follow Through with Shifts to Passive Management

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A year ago, Cogent Reports™ projected that institutional investors would likely be increasing their passive investment holdings, primarily with an eye on reducing costs and a lack of faith that active management was providing that much added value. With our latest wave of US Institutional Investor Brandscape®, we find that investors have followed through with their stated intentions.

Although the majority of assets are still actively managed, there has been a significant decrease in allocation to active funds over the past year. Just over half (54%) of pension assets are actively managed, with more than one-quarter (27%) in passively-managed funds. Notably, pensions with $100 million to just under $250 million in assets report the greatest allocation to passive management, with more than one-third (36%) of their assets allocated to the category. In addition, one-quarter of corporate pension (27%) and public pension (25%) assets are now held in passive investments. Continue reading