Manager Searches Show Interest in Alternatives

According to Mercer’s “2013 Global Manager Search Trends” report, in the U.S., the decline in manager searches continued across defined benefit (DB) and defined contribution (DC) mandates. In the DB space, equity and bond searches declined whereas interest in alternatives grew. Emerging market equities was the most popular search category, but U.S. fixed income had the largest share of assets placed.

“The increase in alternatives searches is mainly driven by US investors’ desire to seek additional diversification away from equities, mainly due to a policy shift toward a less stimulative monetary policy, reducing U.S. dollar liquidity in the U.S. and elsewhere as well as increasing the prospect of rising interest rates sometime in the future,” says Terry Dennison, U.S. director of consulting in Mercer’s investment business. “The dip in DC searches follows the current trend among pension plans to help simplify the member decision-making choices by offering fewer, but more diversified investment options.”

Global search activity ran at similar levels to 2012 with a notable increase in the value of assets placed. Mercer undertook a total of 760 searches in 2013, compared to 776 in the prior year. Across Asia, Europe (ex UK) and the UK search activity increased. In contrast, Australasia and North America witnessed a decline in the number of searches, though both these regions saw a rise in value of total assets placed.

Within the fixed income area a global increase in non-benchmark related fixed income searches was noted. Paul Cavalier, head of Mercer’s Fixed Income Boutique, commented: “Given the potential for modest future returns from government bonds we have worked to identify how clients can protect themselves from the impact of rising interest rates. As a result, we have seen an increased amount of client searches in absolute return, unconstrained bond and multi-asset credit funds, though the trend away from regional mandates to more globally focused products persists.”

There was a continuing strong demand for multi-asset strategies with the total number of searches in this area jumping by one-third over the year. The searches were primarily in the U.S. and the UK but a number of other regions also saw activity in this area. Within the equity space, global and world ex-U.S. categories unsurprisingly continued to see the most activity with limited interest in domestic equities outside of Australasia and North America. Perhaps surprisingly in view of the travails in that sector, emerging markets equity searches ran at a similar level to 2012.

The Mercer report may be purchased from here.