EUROPE – Pension funds in Europe are increasingly jettisoning passively managed equity portfolios for enhanced indexed strategies, says Melissa Brown, managing director of quantitative strategies at Goldman Sachs Asset Management.
GSAM is finding that pension funds are looking for the consistent annual returns above market benchmarks of 1-1.5% that enhanced index equity products can provide consistently.
“It is not only passively managed portfolios, but those actively managed by managers who have not delivered expected performance have moved to these quant strategies,” Brown said at a briefing in London.
One reason given for the change is that pension funds which paid four to five basis points in passive management fees were negotiating fees of 8 to 9 bps for enhanced strategies together with a performance fee.
Pension funds in Europe, particularly in the UK, Netherlands and Nordic countries, have accounted for a significant proportion of new enhanced indexed business so far this year.
She mentioned the £267.5m (€358m) mandate from Leicestershire County Council Pension Fund as being a recent win in the enhanced area.
Leicestershire is among a number of local authority pension funds drawn to the strategy. “In fact, I have never spent so much time as recently in England and Scotland,” the normally New York-based Brown said.
As at the end of April, GSAM had $176bn (€138bn) - of which $98bn is quantitative equity - in quantitative strategies worldwide.
They are offered in both segregated portfolios and investment funds. Of the $98bn in quantitative equity, 41% is managed on behalf of pension funds. Growth in sub-advisory has been particularly strong, at a 37% clip since December 2004.