CIO Survey Shows Active Equity Gains Traction

(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.

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.