Study: Institutional Investors Suffer Delay in Changing Managers, Asset Allocation

Institutional investors are taking far longer to change investment managers or asset allocations than they did before the 2008 financial crisis, a study by Mellon Transition Management (MTM) shows.

(June 1, 2011) — Research by Mellon Transition Management (MTM) — the transition management specialist for BNY Mellon Asset Management — shows that institutional investors are taking longer to change investment managers or asset allocation than they did before the 2008 financial crisis.

“Transition management has evolved significantly since we opened our doors 10 years ago,” Mark Keleher, MTM co-founder and chief executive officer, said in a statement. “While this service originated as a low-cost way to change asset allocations or investment managers, the focus is now much more on risk control. Increasingly, transition assignments involve multiple asset classes, illiquid securities, global markets and derivative overlays.”

According to the study, since the financial crisis began in 2008, institutions have taken up to a year to complete the transitioning of their assets away from one investment manager to another after beginning their initial consultations with MTM. In comparison, before the start of the crisis, the transitioning of assets away from one investment manager to another typically took two to four weeks. The reason for the delay: greater compliance scrutiny within the institutional investment environment as plan sponsors and investment managers deal with regulatory changes and governance challenges. Keleher asserted that transition management trends that started following the financial crisis continue today, with institutions continuing to move money away from home country equities to corporate bonds and international equities.

To see aiCIO Magazine’s Spring 2011 article on transition management’s allocation trends, click here.

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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

(May 31, 2011) — The top 10 private equity firms have increased their investment in Asia significantly over the past three years at the expense of North America-focused investment Preqin has found.

“We’ve seen a change from the 2006/2007 boom era when North American investments were the prime focus for the major private equity firms, but since the 2008 financial crisis, we’ve seen private equity firms looking to new markets for better returns,” Manuel Carvalho, Preqin’s manager of private equity deals, told aiCIO. “Institutional investors need to care where capital is going, and they should keep a close eye on investments by region.”

In terms of fundraising, Preqin’s research found that the top 10 private equity firms account for 18.6%, or $425.7 billion, out of a total of $2.3 trillion in private equity capital raised in the past 10 years. With regards to deals, the study showed 75% of deals were North America-focused in 2006/2007. The region now accounts for 60%. Asia accounted for 5% of deals completed in 2006/2007. In 2011, that percentage is now 23%.

While Asia is becoming a more important region for attracting private equity capital, Carvalho told aiCIO that North America will continue to be the primary region for private equity in the foreseeable future.

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As markets outside the US continue to outperform, private equity investors have been pushed to diversify into other markets. A study last month by the Emerging Markets Private Equity Association and Coller Capital found that Brazil will be the most attractive emerging market country for private equity investors in the next 12 months. “Institutional investors facing escalating liabilities within the next 5-10 years find the growth opportunities in emerging markets very compelling,” said Sarah Alexander, President and CEO of EMPEA, in a statement. “While China and India still top LP wish-lists, investors are also shifting their gazes to the less penetrated markets of Latin America and Southeast Asia.”

The April study found that 73% of private equity investors expect general partners to experience intense competition in China over the next year. Furthermore, limited partners expect the proportion of their private equity allocations directed at emerging markets to increase from 11-15% today to 16-20% in two years.

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