Survey Shows Continued Shift Toward Emerging Markets and Alts

A study by Deutsche Bank has revealed an anticipated asset allocation shift as asset owners migrate away from US equities into other asset classes.

(November 8, 2010) — A new survey by Deutsche Bank points to a continued desire to focus on emerging markets and alternative strategies, such as long-short equity, macro funds and special situations, as opposed to US equity.

“I think it’s one of the first times we’ve gotten proof of institutional investors leaving US equities, with data that confirms that trend,” commented an industry observer. “Here, we see proof that the money is going toward alternatives and emerging markets. The realization has come from the fact that strategic diversification alone is not sufficient to protect in downturns.”

The report — compiled by Deutsche Bank Pension Strategies & Solutions — discovered that hedge funds have emerged as one of the most popular areas for future investment, particularly among public and corporate defined benefit plans. While 46% of respondents anticipate increases to emerging markets and 41% for hedge funds over the next 12 months, 44% said they would like to decrease their exposure to US large-cap equities. Meanwhile, 38% said they would like to reduce exposure to small-cap equities.

Furthermore, the firm’s November 2010 report showed a continued effort to reduce surplus volatility. Respondents noted that interest rates would have to increase 200 basis points to make liability-driven investment strategies feasible.

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In terms of tail risk hedging, the most frequent dialogue Deutsche Bank has had with institutional investors, the report said the results reflect a greater awareness of risks and risk management. While only 35% of respondents reported not looking at tail risk, 51% indicated that looking ahead, equity tail risk hedging will be a premier focus. “A large number of tail risk hedges will be placed this year to protect against black-swan type of events,” the industry observer stated.

The study was compiled by surveying 103 institutional investors in the US pension, endowment, and foundation community, or 20% of market participants, with assets under management of $1.2 trillion. Starting in mid‐September, the firm surveyed chief investment officers and other senior investment officers at these institutions to gain insight into the decisions that will drive pension, endowment, and foundation investing in the end of 2010 and through 2011. Thirty-nine percent of respondents were from corporate pension plans, 27% public pension plans, 17% endowments, 12% foundations and the remainder from other institutions.



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

Sweden's AP1 Pension Sues BNY Mellon for $35.5 Million Loss

The pension is reportedly suing the firm for losses from an investment by the asset manager that went sour during the global financial crisis.

(November 8, 2010) — One of Sweden’s largest pension funds has sued Bank of New York Mellon for more than $35.5 million over investment losses.

“We have been trying to come to an agreement with BNYM for some time, unfortunately without success. We therefore see no option other than to file a lawsuit in order to have this matter resolved by the court. We believe that BNYM have a case to answer and we have confidence in the merits of our position,” said Johan Magnusson, Managing Director of Första AP-fonden, in a release.

Pension fund AP1 on Monday filed the lawsuit against BNY Mellon, which was acting as the fund’s securities lending agent, with the Commercial Court in London. The scheme alleged that losses suffered by Första AP-fonden during 2008 were a direct result of investment decisions taken by BNYM on Forsta AP-fonden’s behalf.

AP1, one of Sweden’s seven national pension funds with net assets of roughly $27 billion, called the investment decision negligent, saying that it violated the fund’s investment guidelines.

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“We have not yet had an opportunity to review this complaint, and so cannot comment on the matter at this time,” BNY Mellon’s Joe Allinger told aiCIO.



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

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