GLOBAL - Real estate and global equities were the most popular asset classes in 2007, according to Mercer's Manager Search Report.
However, the report found the sum allocated to this area remained virtually unchanged.
Andy Barber, global and European head of research, Mercer, commented: "The key trends of earlier years are clearly continuing, including a steady increase in search activity in non-traditional asset classes.
"Recent market turmoil is, however, expected to further accelerate search activity as investors seek not only to further diversify but also, on an opportunistic basis, to identify investments with the potential for higher returns," Barber continued.
In the US and UK, pension funds turned away from domestic equities whilst European schemes were attracted by global fixed income, Mercer found.
There was a marked increase in defined contribution (DC) fund searches in the US, reflecting the number of schemes now present in that country, but defined benefit (DB) searches still outweighed them
Jeff Gabrione, head of investment manager research for the Americas, Mercer, said the company expected 2008 search activity to stay at current levels as plan sponsors continued to diversify into higher alpha-generating asset classes, such as global/international equities, distressed debt and other alternative strategies.
Gabrione continued: "However, there may be additional searches as plan sponsors increase the frequency of asset liability studies and adopt new methods of portfolio analysis and risk budgeting."
Canadian scheme managers showed more interest in socially responsible investing (SRI) and equity markets outside their home bias.
Australian funds also sought SRI managers and refocused on currency mandates due to recent fluctuations in the valuation of the domestic dollar.
Unlike the rest of the world where manager searches have increased, Asian funds halved the number of mandate tenders they ran in 2006 and taken a 'toe-in-the-water' approach to alternative investing.
Marianne Feeley, Asia-Pacific head of research, Mercer, said: "Asian search activity can experience considerable variability from one year to the next given the diversity of clients in the region.
Feely concluded: "In 2008, we expect to see growing demand for alternatives, especially given current volatile market conditions, but as with 2007 we expect a measured approach reflecting investors' emerging understanding of this asset class."
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