$19 Trillion—the Size of the US Institutional Market in 2018

(October 3, 2013) — The US institutional market will increase by 30% over the next five years, leading to the industry having $19 trillion in assets, according to research from Cerulli Associates.

Much of the growth has already come from the burgeoning defined contribution (DC) market: As of the end of 2012, the US institutional market stood at $14.5 trillion in assets under management, $4 trillion of which was in DC funds.

“The shift from defined benefit (DB) to DC is continuing,” explained John Hsu, senior analyst at Cerulli Associates. “DC markets continue to grow faster than DB markets and we anticipate that trend will continue.”

Cerulli Associates’ research also found fund managers were expanding their fixed-income offerings to provide better performing funds for pension managers hungry for yield.

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Non-traditional examples of fixed-income assets which are being considered or under development include bank loans (selected by 30.2% of fund managers), unconstrained bonds (27.3%), and high-yield bonds (13.1%).

“Cerulli contends that development with this risk-focused mentality will resonate well with investors given the heightened sensitivity to risk and need for income,” the report said.

Inflation fears appear to have subsided however. With core inflation averaging 1.6% for the past 12 months and the median forecast around 2% for the remainder of 2013, the push for inflation protection products has fallen away.

One conversation with an asset manager even revealed it planned to delay the launch of an inflation-protected fund, given the dwindling demand for the product, Cerulli Associates said.

“This mentality was validated by our research, as only 2% of respondents identified inflation-protected bonds as a product under consideration or development,” the report said.

Not everyone’s convinced inflation is not a problem: aiCIO reported last month that the California State Teachers Retirement System had increased the inflation-linked part of its portfolio from 2% to 6% to “build in protection for the future” of the fund.

Cerulli Associates’ report can be read here.

(October 3, 2013) — Two large Danish pension funds have partnered with investment bank Goldman Sachs to boost share capital in local energy giant DONG, the company has announced.

National fund ATP and PFA Pension, Denmark’s largest commercial pensions company, have bought new shares worth DKK2.2 billion (€294 million) and DKK800 million (€107 million) respectively. Goldman Sachs has agreed to take DKK8 billion in newly issued stock.

Goldman Sachs and ATP will be represented on the Board of Directors, the company said. It had announced in February that it would be seeking additional equity of at least DKK6 billion.

“This is a great deal for ATP members,” said Carsten Stendevad, CEO of ATP. “We see a significant upside potential in DONG Energy and have great confidence in the ability of the executive team to deliver on the business case.”

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Henrik Heideby, PFA’s president and group CEO, said: “The company is undergoing a positive development under a highly competent management team and with its strong position in its markets we see attractive growth opportunities. We believe this is a great opportunity to generate an attractive long-term return for the benefit of PFA’s customers. The contribution to Denmark’s green energy transformation is an added bonus.”

The deal is the latest in a run by investors to take stakes in energy companies.

Data from the Sovereign Wealth Fund Institute found that $76.3 billion was directly invested in energy companies and assets by these government-backed agencies since 2008, with Western Europe receiving most of the money.

In August, Danish pension provider PensionDanmark announced a joint venture with Burmeister & Wain Scandinavian Contractor A/S (BWSC) to build, own, and operate biomass power plants internationally.

The move follows an investment by the Merseyside Pension Fund, one of the largest in the UK public sector, in an anaerobic digester in North Wales.

A month earlier, the Pension Association, the Japanese federation of employees’ pension funds, announced it was making its first direct infrastructure investment, and had entered an agreement to buy a stake in a gas-powered power plant in Michigan. The deal was made alongside infrastructure stalwarts, Borealis—an affiliate of the Ontario Municipal Employees’ Retirement System (OMERS).