GLOBAL - By 2009 nearly 70% of all pension plans may be using customised benchmarks, to create more sophisticated investments, according to Tabb Group.
Adam Sussman, research director, Tabb Group, said: "The appetite for index-based funds is nearly insatiable, with index-based assets under management (AUM) increasing by 2,610% since 1993."
Institutional investors have been at the heart of the change within the benchmarking space, according to Sussman.
He said local governments had imposed socially responsible investment (SRI) constraints that required a redefinition of the opportunity set and a recalculation of the best possible performance.
These constraints had blossomed into a new industry of research and indexing allowing people to tailor their investments along social, moral and political beliefs, Sussman added.
"There's no slowing down the tide of indexing," said Sussman. "Pension plans need better ways to measure the performance of alternative asset managers.
"ETF, exchange-traded note and other index-based managers will need more products in the pipeline. The fallout from the current credit crisis will create pressure on the industry to develop more transparent indices for OTC products, " he concluded.
Sussman also noted it was only a matter of time until there was an index of indexers.
The report was based on in depth interviews with 38 pension plan and investment managers responsible for or actively managing investments worth $2.32trn dollars in the US, UK and across the European Union.
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