Biggest Asset Managers Losing Market Share, Survey Shows

Full-service shops are holding less appeal as institutional investors increasingly seek out specialty managers, according to the results of survey from Cogent Research.

(January 28, 2013) – Asset owners moved to invest with their own herds in 2012—pensions in one direction and endowments/foundations in another—a broad survey shows, and the biggest asset management firms are suffering for it. 

Major institutional investors (with holdings of $20 million and above) entrusted 40% of their assets to the 41 largest managers in 2012, down from 45% the year prior, the survey by Cambridge, Mass.-based Cogent Research showed. The firm polled 650-senior investors from pension funds (43% of the sample) and non-profit institutions (57%).  

Linda York, Cogent’s director of syndicated research and a lead author of the report, attributed investors’ shifting tastes in managers to their shifting tastes in assets. 

“Across the board, we saw that respondents anticipate decreasing their holdings in US public equities,” York told aiCIO. “Overwhelmingly, the investors surveyed would only consider the leading asset management firms”—giants like Vanguard and J.P. Morgan—“to be strong in US public equities. They don’t consider those firms to be very strong in other places. Either investors are not aware of the capabilities of leading asset managers, or it’s not what they want.” 

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Endowments and foundations seem to want just the opposite of the one-stop-shop management giants: small, niche firms with narrow mandates, which now control 54% of non-profit wealth. These institutions cut nearly a quarter of their average allocations to the big players between 2011 and 2012, from 40% to 38%. 

“The thing that really stood out to me about these results was the divergent path that pensions and non-profits are taking in their approach to managing their asset pools,” York said. “Pensions are much more focused on de-risking, managing liabilities, and seeking competitive returns to meet future payouts. Non-profits, in contrast, are acting much more opportunistic. They’re looking for ways to capitalize on alternatives and seeking higher returns. If you’re one of these big firms, you really do have non-profits who are saying, ‘What new ideas do you have?’”

CalPERS Unveils ESG Study, Research Competition

The relationship between sustainability factors and financial performance is a never-ending debate--and CalPERS will soon be fueling it.

(January 28, 2013) — The California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the US with assets totaling $251 billion, has unfolded a sustainable investment research initiative with an eye toward helping pension funds understand the impact of sustainability factors on financial performance.

“CalPERS has made it a priority to use sustainability factors in making investment decisions across our Fund,” said Anne Simpson, CalPERS senior portfolio manager and director of global governance. “This initiative will aid us in our application, and help us draw conclusions that can inform our investment strategy and beliefs.”

Steven Currall, dean of the UC Davis Graduate School of Management, added in a statement: “We look forward to working with CalPERS on this path breaking research to provide an independent analysis to better understand the potential impact of ESG issues on capital markets, companies and intermediaries in the investment chain. This project is both theoretical and practical.”

As outlined by the pension fund, there is a lack of global consensus on how environmental, social, and governance (ESG) factor influence investment risk and return across asset classes in current scholarship and in the investment world. Those ESG factors range from climate change, labor practices, and human rights, to executive compensation.

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In 2011, the CalPERS Board approved integrating ESG issues as a strategic priority across its investment portfolio. As outlined by the pension fund’s 2012 report titled “Towards Sustainable Investment,” ESG is grounded in the three forms of economic capital–financial, human and physical–that are needed for long-term value creation.

According to a statement by the fund, the research initiative also marks the start of a call for working papers from scholars and investment practitioners globally in the fields of finance, economics, accounting, law and business. The papers will contribute to a rigorous debate and discussion on the impact of ESG issues on long-term value creation and capital market stability. CalPERS will partner with the UC Davis Graduate School of Management to seek, collect and review the papers.

Related article: Australia’s Christian Super, CalPERS Exemplify Sustainable Investing

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