Institutional Mgrs Coming Cautiously Back to Equities

June 19, 2009 ( - The equity markets have been pretty scary at times in recent months, but that apparently hasn't prompted institutional money managers to flee the asset class permanently, a new survey has found.

A J.P. Morgan Asset Management report about its April 16 to May 5, 2009, survey of 324 institutional asset managers found 80% say they still plan on having equities as the most sizable chunk of their holdings. J.P. Morgan said while most still professed concern about market volatility and about liquidity issues and that most are putting off any radical rebalancing for now, most of the managers indicated they were “slowly and cautiously” rebuilding their portfolios with goals that would put them close to their equity levels of year-end 2008.

Original 2008 levels featured an average 12-month forward target of 51% – roughly halfway between where average port­folios actually were (47% equity) and where investors wanted them to be (54% equity) at the end of last year, J.P. Morgan said.

With 52% of the asset allocations the same as last year, among the 44% of investors decreasing equity allocation targets, 23% are decreasing target levels by less than 10% and the rest are shifting asset targets by 10% or more. Approximately half are shifting the greatest share of these equity assets toward fixed income; roughly one-third are primarily expanding alternative allocation targets and the balance are shifting toward cash or equally toward a combination of the above categories.

Differences among Institutional Players

But there is a significant difference among the different types of institutional players – with good reason, J.P. Morgan said. In the case of corporate plans, having taken a sizable hit from the down markets along with new more stringent funding and account regulations, asset managers are being driven by a lower risk tolerance.

Among the 43% of corporate plans decreasing equity allocation targets, 62% are primarily shifting toward fixed income. On the other hand, among the 47% of public funds and 38% of endowments and foundations with decreasing equity targets 65% and 54%, respectively, are shifting primarily to alternatives,

“Consensus on the outlook for equity market returns is still building and, at this stage, investors appear more focused on overall allocations than on the specifics of strategies, geographies and styles,” the J.P. Morgan researchers wrote. “But what they are looking for is clear – risk-appropriate strategies that rely on a transparent, back-to-basics approach, with a preference for fundamental research-driven strategies in the hands of experienced portfolio managers, implemented with conviction and consistency in style.”

J.P. Morgan pinpointed several important equity trends:

  • Overall, investors appear to prefer investment approaches, manager characteristics and strategy types that suggest a desire to go "back to basics." "In other words," J.P. Morgan said, "they want to own what they know."
  • Results are mixed with respect to the near-term outlook for equity returns, with greater consensus around moderately positive returns three to five years out.
  • Some investors are trying to find returns in other asset classes, but, for the vast majority, equity remains the largest target allocation.

Respondents represented corporate, public and Taft-Hartley plans, endowments and foundations, insurance companies, health care-related organizations and religious and other not-for-profit institutions - the majority of which reported having $1 billion or more in assets under management.

More information is at .