UK - Leading passive managers have seen a steady increase in their index tracking business since the beginning of this year.
Barclays Global Investors said that its first quarter figures are in line with its main competitor, Legal & General. Last year L&G was the most successful passive manager, netting a total of £13.2bn. State Street Global Advisors also said that its tracking business has increased substantially. Factors which are attracting pension funds to passive investment include the increasing number of new DC schemes, which regularly offer index-tracking as a default option for scheme members.
Higher fees for active management, coupled with funds’ strenuous efforts to cut costs, has meant that many consultants are recommending a larger portion of pension fund portfolios to be invested in passive management.
And last year’s high-profile Unilever court case – which highlighted some of the risks of active management – is thought to have further enhanced the attraction of low-risk passive investment.
BGI head of UK institutional business development Miles O’Connor said: “A lot of decisions were held off from last year. Up until the end of this month, when comparing third and fourth quarters to last year, there is certainly a significant increase in indexation.”
O’Connor continued: “Indexation is still principally used as a diversifying and a risk management structure – as part of a total fund structure.”
Figures from the WM All Funds Universe show that the value of index tracking in pension funds increased from 37.8% in 2000 to 46.6% in 2001, with the figure expected to rise again this year. The percentage of UK equities in 2001 has decreased slightly from 0.18% to 0.17% in 2002. The number of portfolios stood at 49 in 2001 and 58 in 2002.
• The £2bn Merseyside pension scheme with 44% of total assets invested in UK equities will outsource 30% of its equity allocation on a passive basis in the second quarter this year.
The scheme is advised by William M. Mercer.
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