US manager search activity targets bonds

Funds manager search activity in the US for the first half of the year was higher than the corresponding period last year, with search activity significantly shifting towards fixed income, Mercer reports.

The increase in attention to fixed income, a complete flip of the previous year which saw mostly equity searches, was driven by a closer alignment between asset and liability growth, as well as funds seeking additional alpha in credit markets.

Mercer advised clients on 65 searches in the US during the first half of 2009 compared to 61 during the first six months of 2008, with assets placed also showing a modest increase from $7.3 billion to $7.8 billion for the same two periods.

Jeff Schutes, head of Mercer’s investment consulting business in the US, said many sponsors of defined benefit plans focussed on improving the alignment between asset and liability growth to minimise their funded status risk by employing long-duration strategies.

In addition he said several core fixed income managers dramatically underperformed their benchmarks during 2008 and were replaced by new managers. Some plans also took advantage of opportunities within the credit markets in seeking additional alpha.

Fixed income searches in the first half of 2009 totalled 26 versus 11 during the same period in 2008, while assets placed rose from $1.1 billion to $4.7 billion. Activity was strong in core investment grade, core opportunistic, credit and long-duration mandates.

Within US equity, search activity declined significantly from 29 searches during the first half of 2008 to 17 during the first half of 2009. Large cap mandates showed the greatest decline while small cap style mandates (growth and value)
had modest activity.

International equity (including all global, EAFE and other global ex domestic) remained essentially flat in terms of the number of Mercer-conducted searches but showed a significant rise in assets placed.

Emerging markets showed a slight decline from the first half of 2008.

Searches in alternative asset classes were muted during the first half of 2009 as sponsors focussed on realigning their risk management policies. The real estate asset class showed a slight rise versus the first half of last year while searches in hedge funds and private equity declined.

“While capital market volatility has diminished to some extent from 2008, we believe sponsors will continue to concentrate on asset allocation policies and manager performance/risk issues,” Schutes says.