UK – More than 75 UK pension funds have made allocations to hedge funds, according to a report from Morgan Stanley.
“Even in the conservative UK pension fund market with consultants as drag anchors, we estimate that over 75 UK pension funds have now made allocations to hedge funds,” the bank said in a report on European asset managers. All bar six had gone via fund of funds.
The 72-page report was partly based on meetings with senior management at European asset managers.
The study also stated that traditional low tracking error mandates are in decline. It cited a pension fund adviser as saying it hadn’t awarded a benchmark +1% mandate to a traditional active manager for two years.
It also found that the Dutch pension fund market is now in “flux”.
“The urgent search for alpha, a growing wanderlust of clients increasingly happy to switch to best-in-class managers and significant changes in pension fund regulations from 2006 are all issues to manage.”
It saw strong growth in enhanced indexing in the market at the expense of active and pure passive.
Morgan Stanley also focused on the growing role of asset liability management.
It said: “Asset liability management and diversification are asserting their dominance in pension fund and institutional thinking, and many investors have been given a sharp lesson in portfolio concentration risk.”
Investors were now demanding a more active approach to strategic asset allocation. And there was also a desire for greater diversification and capital preservation – via alternatives.
And the bank also found that tailoring solutions was increasing.
It said: “Over time, we think bond weightings are likely to rise for more mature schemes in the UK, especially given high proportion that’s closed to new business; however, near term inflows to bonds are likely to be modest, given concerns of rising rates.