UK – Trustees at UK pension funds are showing a “lot of interest” in long-term absolute return equity strategies, says Watson Wyatt.
“This is an area where trustees have a lot of interest,” said senior investment consultant Jane Welsh. “They feel it makes a lot of sense to them.”
The firm selected 11 managers for long-term absolute return equities in the UK in 2003. Welsh added the firm was continuing to see interest in 2004.
But explaining other strategies such as swaps was much harder, she added. And such structured programmes – which included four swaps transactions and five equity option strategies last year – are often corporate decisions by the plan sponsor, Welsh said.
She told a briefing that Watson Wyatt was working with investment banks on creating such products.
She also referred to the impact of Paul Myners’ review of institutional investing. “I think the Myners review has led to changes in how pension funds are governed,” Welsh said, adding that former fund managers were now joining scheme investment committees and additional resources were being given to investment decisions.
“There is a feeling that they have to work their assets work harder.” She added: “An extended bear market focuses the mind.”
Referring to its UK manager selections by structure, that core mandates fell, whilst enhanced index, satellite and absolute return mandates increased.
Watson Wyatt made 359 manager selections, allocating 57 billion dollars of assets globally, in 2003 – compared to 462 selections and 45 billion dollars in 2002. Welsh said: “We would expect this amount of activity to continue or even pick up. We’re expecting continued growth.”