| LDI trend benefits fixed income, high alpha mandates – Hymans Robertson |
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| 14/05/2006 | |
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The search for more asset-liability matching is leading UK pension funds to use more specialist fixed income mandate. According to a survey of the 50 largest UK fund management companies by Hymans Robertson, the investment consultancy, assets of UK clients under management in fixed income has risen by over 50% in the last four years. "The many changes to UK pension regulations in recent years and, in particular, the introduction of the FRS17 accounting standard, which requires companies to show pension liabilities on their balance sheet marked to market, have been the main drivers behind the growth in bond mandates", stated Hymans Robertson in its 2006 market briefing. These mandates were "largely sourced in 2005 from the sales of UK equities", it added. In an attempt to latch on to this trend, Hymans Robertson reported that a number of managers developed liability driven investment (LDI) solutions in 2004 and into 2005. The firms which did so in 2004 were trying to gain a "first mover advantage", it said. As of now, LDI assets account for a relatively small share of the total assets under management. The five largest companies in terms of LDI solutions in Hymans Robertson's sample reported £26bn of wins in 2005, out of a £1tr total fund market size. "It will be interesting to see how those firms who are currently behind the curve for LDI solutions compete for market share. Over 50% of managers surveyed advised that they have developed, or are in the process of developing an LDI product. We expect the LDI market to continue to gather pace throughout 2006", commented Stephen Birch, co-head of Hymans Robertson's manager research. Along with this gradual move toward a better match between assets and liabilities, fund managers also reported a shift toward higher alpha and more diversified mandates, once again out of UK equities. Hymans said that global equity mandates benefited, while there was a "modest increase" in alternative asset classes such as hedge funds, private equity, commodities, currency overlays and property. In the meantime, Mercer Investment Consulting reported a rise in manager searches in Continental Europe and said it expected specialist search activity to continue growing across Europe in 2006. J.L. |
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