A world where animal spirits are running wild is also one that has temporarily divorced from fundamentals. Experience tells us this often doesn’t end well.Â
The wealth transfer from Baby Boomers to their offspring, which is in full swing, has got the taxman’s full attention, especially as it pertains to capital gains payments, trust structures and potential breaches of the Tax Act’s Division 7A.
Different strokes for different pension funds
Two of the world’s largest asset consulting firms, Mercer and Towers Watson, last week published figures showing the continued trend for institutional asset management to be outsourced into multi-manager platforms, on the one hand, and increased diversification through direct investments in so-called “smart beta” strategies on the other.
Mercer announced that its European assets from outsourced arrangements jumped 67 per cent to $US17.5 billion, while global outsourced assets – including APAC, where Mercer launched its managed trusts in the 1990s – grew by $US16.8 billion to $69.8 billion.
Towers Watson announced that clients including pension funds, sovereign wealth funds and insurance funds, increased their allocations to hedge funds and private markets strategies by 70 per cent to about $US12 billion over the past two years.
Towers Watson said that the new alternatives mandates were increasingly direct rather than through funds-of-funds.
The “smart beta” strategies attracted an additional $5 billion in 2012, taking their total to about $20 billion.
“Smart beta” is the name given to a grab-bag of strategies ranging from index funds in alternative asset classes, such as listed real estate, to tilted and non-market-cap index funds, to specialist reinsurance, volatility and currency funds.
Towers Watson’s Craig Baker, global head of investment research, said the number of hedge fund mandates awarded to direct funds last year continued to increase, especially in the macro, fixed income and reinsurance areas. Similarly within the private markets area, real estate, private equity and infrastructure, direct funds received the vast majority of assets.
The Mercer outsourcing story tends to contrast with this, as more – presumably smaller – funds are prepared to give up direct control over their investments.
Mercer said that this reflected institutions looking for services which enabled them to quickly adjust their portfolios in response to market changes while ensuring that investment governance remained strong.
It should be pointed out, however, that while the Towers Watson smart beta strategies may not be their own managed funds, the firm usually has strong links with the underlying managers in these categories and the client pension funds often rely on the consultant for active oversight.
