UK - An emerging trend by UK pension funds to hire foreign managers to manage their assets is causing a shift in the ownership profile of UK public limited companies, according to State Street Global Advisors (SSgA).
Rick Lacaille, CIO Europe, estimated that of those countries with major funded pension systems and large long term asset pools, allocation to international equities has jumped from 32.3% to 38.4% over the last four years.
“This percentage increase looks modest, but is based on a pool of assets totalling several trillion dollars,” he said. “Overseas, investors are buying UK equities, whilst our own pension funds are selling them resulting in a better diversified portfolio for all investors.
“It is hard to disentangle two significant inter-related effects: firstly the trend towards globalisation of asset portfolios which naturally leads to a shift in the share register, and secondly the trends in the asset management industry which have been unfavourable to some well known domestic players relative to foreign owned houses.”
In the UK, the domestic component of pension fund portfolios has fallen from more than 71% to less than 60% between 1998 and 2004.
SSgA said institutional investors in most markets are shifting from domestic to global and tending to use a different set of asset managers whose assets come from investors in many countries. This trend has led to growth of large global investment houses at the expense of the more domestically focussed players and internally managed funds, the firm added.
According to estimates, Lacaille said North American institutions control 21% of UK public limited companies, their UK counterparts about 49% and European investors 8%.
SSgA said about 15% of the share capital was likely to be held by index funds, of which roughly 10% would be domestic investors, with the remainder overseas, mainly US.
Actively managed UK domestic institutions make up 41% of the share capital while active overseas investors cover 27% and continues to grow.
“The investor base is between one half and two thirds from North America, and mostly but not exclusively managed by US asset managers,” Lacaille noted. “These investors are much more likely to be style driven than their UK based counterparts.”
SSgA estimates the UK represents about 10% of the investable hedge fund universe, with hedge fund investments in the UK equity market roughly 3.8% of the market.
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