CIO Survey Shows Active Equity Gains Traction

According to the latest quarterly CIO study by KBW analysts, the outlook for active equity has modestly improved, while alternative strategies in particular seem poised to generate new flows.

(February 7, 2011) — According to a new survey of chief investment officers, long-only actively managed equity strategies seem poised to pick up some modest market share.

The quarterly study by KBW analysts showed that in contrast to the firm’s previous study where active equity seemed poised to lose market share, about 32% of the respondents to the survey now expect to increase their allocations to active long-only equities over the next three years, while one-quarter expect to decrease. Furthermore, within equity strategies, 60% expect to increase their allocation to international strategies.

Meanwhile, the study showed assets seem poised to continue to flow to alternatives and passive strategies, while fixed income could lose slight market share. According to KBW, about 41% of respondents expect to increase their allocations to hedge fund strategies compared to only 7% that expect to lower their allocations, with 23% and 36% of respondents expecting to increase their allocations to private equity and/or real estate, respectively.

KBW’s research coincides with other recent studies by bfinance and Cliffwater, which showed pensions seek to reduce equity and bond exposure, favoring alternatives. On a global basis, in its fifth bi-annual Pension Funds Asset Allocation Survey compiled from studying 50 institutional investors representing nearly $205 billion of assets, financial services consultant firm bfinance noted in its recent research that pension funds and other institutional investors are backing out of traditional equity and bond allocations and increasingly favoring alternative asset classes, with infrastructure and private equity attracting the most popularity. The transition signals a shift in sentiment by pension funds, as they are seeking to diversify away from core asset classes and into property and alternatives.

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In the US, further research that reflects that pension systems are looking to up their allocation to alternatives comes from a report by Cliffwater, which showed public pension funds in the US are likely to allocate an additional $20 billion to hedge funds. The study by the alternative advisory firm found that nearly half of the pension funds surveyed invest directly in hedge funds, while 33% invest solely through funds of hedge funds, and 18% allocate via a combination of both.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

After Scandal, Wesleyan's New CIO (a Swensen Protege) Boasts Above-Average Returns

Wesleyan University's Chief Investment Officer Anne Martin is implementing a new philosophy following the scandal of Thomas Kannam, the endowment's former CIO who left the school after being sued for spending most of his time on outside business ventures, despite having a contract that prohibited such behavior.

(February 7, 2011) — Last August, Wesleyan University’s former Chief Investment Officer Thomas Kannam, who was once one of the university’s most highly paid employees, was sued for allegedly mishandling university endowment assets for personal trips and other expenses. He was forced to resign in October.

Now, the endowment’s current chief investment officer Anne Martin, formerly at Yale’s endowment under the notorious CIO David Swensen, is implementing a new philosophy, university spokesman David Pesci told aiCIO. “Before, we had someone managing under the board of trustees, but Anne is implementing a new philosophy to put us on a more sustainable vision,” he said. Wesleyan’s endowment grew 13% in fiscal year 2010 to $512.9 million — an increase above the average 11.9% for the 2010 fiscal year, as reported by the latest 2010 study by the National Association of College and University Business Officers (NACUBO) and the Commonfund.

“I’m most excited about the fact that our new Chief Investment Officer, Anne Martin, has put in place a process for the rational management of the endowment for the long term,” President Michael Roth told the campus newspaper. “I think what’s really important is that over the long haul we protect the endowment and we help it grow and not be subject to the swings that we’ve seen in the past.”

According to The Argus, Martin, who started August 1 at Wesleyan, said she has high hopes for the future with the endowment pacing itself well to reach its goals, noting a need to increase exposure to emerging markets. Martin was previously at Yale University’s fund overseeing venture capital, energy and commodities investments under David Swensen, who has earned praise from the investment community for pioneering the “Yale model.”

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Martin’s predecessor, Kannam, had served as Wesleyan’s director of investments from December 1998 through 2005, when he was promoted to serve as chief investment officer. He resigned after being accused by the university for using Wesleyan employees and university resources to offer research and other services to private firms. As a condition of employment, Kannam was prohibited from serving in any other positions or on boards, compensatory or otherwise, without permission from the university president, yet Kannam failed to seek consent or disclose his affiliations and lucrative outside ventures that persisted throughout his work at Wesleyan.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742