GLOBAL - Pension funds are showing an increasing appetite for currency overlay and Japanese equity with a growing number of mandates being awarded to investment managers, Mercer Investment Consulting has found.
Releasing the results of its global investment manager search activity for 2004, Mercer said currency overlay attracted the greatest increase in interest in 2004, with 28 searches and US$10bn worth of assets placed with managers, compared to just eight searches and US$2.7bn of assets in 2003.
Currency overlay also ranked highest in terms of value of assets placed with managers during 2004.
“UK pension funds, in particular, showed more interest in currency overlay, hiring managers both to reduce currency risk and to add value through active currency management,” said Bill Muysken, global head of research at Mercer.
“Search activity for non-traditional asset classes increased in the UK, with clients seeking to reduce their equity risk without sacrificing long-term performance.”
Interest in Japanese equity rose substantially, with 23 searches conducted and US$1.4bn of assets invested during 2004, compared to four searches the previous year, Mercer said.
Global equity mandates were among the most frequently sought in both the UK and Europe.
According to Mercer, US equity was the most popular single product category during the year, with global equity – the most popular asset class in 2003 and 2002 – following close behind. US equity accounted for US$6.1bn in assets placed with managers and 90 searches, while global equity accounted for 85 searches and US$8.9bn in assets.
In Australia, Australian and global equity were the most sought after while Japanese equity and Asia Pacific fixed income ranked highest for Asia.
Search activity in Australia was stronger than in Asia, with 101 searches conducted, although assets valued were slightly lower at US$5.1bn, compared to US$6bn in Asia.
Mercer predicted increased demand for international mandates from Canadian pension funds this year on the back of lifting of foreign investment restrictions.
The firm advised on 764 manager searches globally during 2004, covering US$84.4bn of asset placed with managers – up 27% from US$66.7bn in 2003 and a record high for the firm. Muysken put the large growth down to increased search activity from national government funds.
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