UK - Latest figures from Hewitt Associates imply a growing appetite of pension funds' for allocations to unconstrained mandates, the consultant says.
Hewitt – a long-time advocate for a move to an unconstrained investment approach – said over the last year and a half, 20 of its clients, representing pension fund assets totalling £9.6bn, have allocated on average 12% of their total assets to fund managers investing in equities without traditional benchmark constraints.
In addition, in the last three months, the firm says it has completed ten manager selection searches for unconstrained mandates on behalf of clients.
Ian Peart, head of manager research at Hewitt, said: “The appetite among our clients for awarding unconstrained mandates is certainly growing. We view this as a pleasing acknowledgement that the current investment process is flawed and that the terms of reference given to fund managers need to change. Some investment houses have responded to this demand and we would encourage more to do so.”
There are currently a limited number of funds capable of managing money with an unconstrained approach but Hewitt says it is actively encouraging investment houses to open new funds which allow fund managers the freedom to “back their own judgement”.
The consultant has even taken the unusual step of working with several investment management firms to assist them in setting up and structuring funds that accommodate this type of management.
Andrew Tunningley, head of UK investment consulting at Hewitt, said: “The number of fund managers who have the skills and the flexibility to run funds in an unconstrained way is currently limited. A number of these existing funds have been open for some time and are already approaching final targets. We are supportive of the decision to set a target and close to new business, as it allows fund managers to focus on making investments rather than simply asset gathering.”
He continued: “What this means is that there is an opportunity to launch funds that can invest in this way. Our intention is that this [development of the new funds] offers greater fund manager choice to clients and avoids any capacity issue in this market.”
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