The annual survey of European Pension Fund Managers produced by Mercer Investment Consulting, once again provides some engaging figures as Europe’s total pension assets exceed $4trn (E4trn).
Pensions assets as a proportion of GDP in the 15 countries covered by the report which covers an 18-month period to 31 December 2001, shows large growth in Finland, Ireland and Switzerland. In the UK, which with over $1.6trn in total pensions assets has the largest pensions market in Europe, private sector pensions assets have leapt from 91% to 131% of GDP. By contrast, Sweden has experienced a significant fall as pension assets dropped from 112% to 85% of GDP.
Yet again, Barclays Global Investors (BGI) tops the list of European pension fund managers with pensions assets of $148bn as of 31 December 2001 (both segregated and pooled assets) up from $115bn in June 2000. Among the top five managers of European pensions assets there has been some notable reshuffling. Deutsche has usurped Merrill Lynch, moving up to second place from fifth last year with European pension assets of $102bn. Legal & General has moved up one place to third with pension assets totalling $98bn; followed by Credit Suisse Asset management which is a new entrant among the top 10 managers of European pensions assets reflecting the acquisition of the Sun Life of Canada investment business. Occupying fifth place is Merrill Lynch with assets of $83bn, down from second place. Including CSAM, there are five new entrants to the table: Foreign & Colonial, Nordea, Gartmore and Dresdner Bank Group. Four of the top 10 manage a significant proportion of index tracking assets.
The most startling number in the guide, says Julia Hobart, head of manager advisory at Mercer Investment Consulting and editor of the report, is the sharp decrease in mergers and acquisitions activity during 2001. Only 9% of managers were involved in M&A activity last year compared with 25% in 2000 and 33% in 1999.
There has also been a slowing down of product proliferation, with managers decreasing their product launches to an average number of products per manager at 9.3.
Unfavourable equity markets (with equity mandates increasing by just 17% in the past year) has resulted in a sizeable increase in bond mandates of 52%. Yet, the huge switch from domestic bonds to euro-denominated bonds at the introduction of the euro over the first two years, has seen a slow down in 2001. “On the bonds side you get this tapering shift,” says Hobart. “If anything, Euro-zone bonds fell.” Bucking this trend, Finland’s appetite for euro bonds has been sizeable; more than doubling its allocation in 2001 from 16% to 31.4%. Italy has also made a substantial increase moving out of real estate into Euro-zone bonds with an overall allocation of 11.8% up from 0.4% in 2000. By contrast, Norway and Switzerland have both increased their domestic bond holding.
Volatile equity markets are reflected in Germany, Italy and Norway’s significantly decreased allocation to equities with Italy allocating only 9.6% of its pensions assets to equities at the end of 2001, compared with 44% back in July 2000.
The rise of alternative investments continues apace, particularly in property and hedge funds with UK and Dutch investment in real estate increasing by 100% and 225% respectively in the last three years. Pension funds have been more hesitant to invest in hedge funds; historically the preserve of high net-worth individuals, yet the gap is narrowing, a trend most pronounced in Switzerland.
The number of specialist mandates has grown by nearly two thirds in five years, now representing 47% of all mandates. Although these mandates continue to be mostly specialist equity; there has been a 50% rise in specialist bond mandates in 2001.
The report suggests that UK managers continue to dominate the European pension fund market. Of the top 20 managers, 14 list the UK as one of their home countries.
A small, but growing trend in the marketplace has been that of Socially Responsible Investing (SRI). With increasing numbers of managers offering specialist SRI funds and services, it enters the report for the first time.
The European Pension Fund Manager Guide 2002. Details are available via email at: