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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.
Non-profits, in aggregate, now hold less than half (48%) of their assets in actively-managed strategies and nearly one-third (29%) in passively-managed investments. This trend is being driven by the smallest non-profit institutions (those with less than $100 million in assets) and foundations, which allocate a full 32% of their assets to passively-managed strategies.
One aspect that hasn’t changed is the factors driving asset allocation changes. Institutional investors continue to follow two diverging paths: the focus of pensions is very clearly on de-risking, while non-profits seek higher returns and further diversification. As such, asset managers serving the institutional market need to employ dramatically different strategies with distinct product offerings to retain and cultivate existing relationships and position themselves effectively for consideration for future mandates.
For information on the nuances of $1 billion-plus institutions’ unique needs and behaviors, read a white paper based on the 2014 US Institutional Investor Brandscape report: