NETHERLANDS - Most actively-managed assets underperformed last year because of the additional costs charged over passive strategies, Hewitt Associates has suggested.

The burden of management fees for generating apparent alpha as well as trading costs came on top of the drop in assets' value experienced in the decreasing equity markets, the consultancy argued.

"Based on the results we have seen so far, most active managers have achieved a negative performance, which also has an impact on [a pension fund's] cover ratio," said Hewitt.

The consultancy's research indicates active management of fixed income, in particular, has fallen short of the benchmarks.

"We found a difference in performance between active and passive management of 2% on average, rising to almost 10% in individual cases," said Maarten Thomassen, head of investment consulting.

"After the takeover of Bear Stearns, a large number of managers had taken large positions in financials and/or high-yield bonds. But following the worsening credit crisis and liquidity drying-up in the corporate bond markets, fixed income managers were not able to adjust their positions in 2008," he explained.

Many managers with active cash mandates have also underperformed by investing in asset-backed securities, which lost much of their value following the credit crunch.

"Actively-managed cash mandates have also fallen short of their benchmarks by up to 10%, estimated Thomassen, adding active managers are increasingly struggling to achieve outperformance.

The consultancy found pension funds with passively-managed assets have performed considerably better than schemes with actively-management investments, resulting in higher cover ratios.

"Most passively-managed equity investments have met their benchmark," said Thomassen.

"As a result, some pension funds are already considering switching to passive management, as a way of generating growth through cutting costs," he added.

Mercer Consulting's experience with underperforming fixed income managers is similar to Hewitt's findings, according to Dennis van Ek, partner at Mercer.

"We have seen managers in the Netherlands falling short of their benchmark by up to 7%," he said, adding at least two pension funds have already decided to withdraw their fixed income assets from active management.

Van Ek said a large proportion of 80 monitored managers of the global bonds universe have shown an underperformance during the past two years.

"Only managers with the highest rates have been outperforming in the last 10 years," he said.

Hewitt Associates' analysis is based on its monitoring of clients and pension funds in the Netherlands.

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