Risk control is now the most important factor investors consider when employing external asset managers, according to the latest Invesco annual survey of European institutional investors and their markets. In sharp contrast, risk control didn’t even figure in the top six factors in 2000.
The survey, conducted across the institutional asset management markets in Benelux, France, Germany and Italy, finds that just over 30% of investors saw risk control as the determining factor in selecting managers, followed by performance, quality of reporting, clarity of process and professional rating.
According to the research, satisfaction with external managers seems low, 39% of those polled having recently broken a relationship – of which 60% for performance-related issues - and 24% claiming their managers don’t understand their investment objectives.
However, 19% of respondents say they plan to increase their asset allocation to external managers, whilst only 9% say they would decrease it.
Overall, despite declines in the stock market, the report suggests there have been small increases in equity weightings, property and alternative portfolios whilst cash and fixed income have decreased.
Elsewhere, institutional investors are also beginning to plan further ahead. The survey says their investment horizon has lengthened, with a just under a third saying they now took a 10- year perspective in preference to five as was previously the case.
Investors are using segregated mandates more and the trends towards manager diversification is increasing with nearly two thirds reporting they now use more than five managers.
Says Jean-Baptiste de Franssu, chief executive officer of Invesco Continental Europe: “The European institutional market is changing fast. It is clear from this study that the volatility of markets in 2001 had an impact on institutions’ views, and their expectations of external managers.”
The survey sought the views of 177 institutional investors in Belgium, France, Germany, Italy, Luxembourg and the Netherlands based on data at the end of 2001.