Institutional investors pursued opportunities in the international equity, U.S. equity and emerging markets equity asset classes. The data also highlighted an increased appetite among investors for nontraditional fixed income. These debt instruments were seen to present investors with opportunities, while sovereign government bonds were perceived to have limited investment potential and higher risks. Mercer noted increased interest in direct and listed infrastructure investment and, more broadly, in alternatives.
The data comes from Mercer’s “2012 Global Manager Search Trends” report, which gives insight into institutional investment manager hiring patterns and search trends around the world. The report is based on activity reported through Mercer’s global client database. Overall, search activity increased in most regions with the number of searches undertaken by the consultancy standing at 776 in 2012 compared to 742 in 2011.
“We’ve seen increasing interest in non-traditional fixed income. Investors have been looking to reduce their equity exposure but have been reluctant to add to traditional fixed income holdings, such as sovereign government and credit, at current yield levels,” said Andy Barber, partner and technical leader of Mercer’s Manager Research team. “The result was a variety of different fixed income mandates—notably absolute return and emerging market debt. The desire to further diversify growth portfolios is evident from continuing interest in alternatives, with infrastructure in particular attracting an increased proportion of search activity.”
The report found that global/international equity remained the most popular search and, even though the number of searches in this category declined in 2012, the assets placed increased by nearly 30%. U.S. equity was ranked second, followed by emerging markets equity, Canadian equities and global fixed income. Search activity across a range of alternative asset classes was also robust particularly with Infrastructure, private equity and multi-strategy hedge funds.
Barber added, “In our report, the value of assets placed fluctuates depending on structural changes at investor level, as well as opportunities available in the market. Globally, we have seen the same levels of assets placed in 2012 as we saw back in 2002.”
In the United States, while overall searches declined marginally in 2012, the data showed that fixed income searches rose. World (non-U.S.)/EAFE equity was the most popular asset class followed by emerging market equity. The interest in fixed income occurred in both U.S .and global mandates driven by investors’ desire to seek incremental yield. U.S. fixed core investment grade searches more than doubled in popularity.
“In the U.S. in 2012, we saw a shift in search activity from equities to fixed income,” said Terry Dennison, Mercer’s director of U.S. Consulting. “This was driven by investors’ desire to restructure their fixed income allocation to take advantage of interesting opportunities. We appear to be in the midst of a secular change with fixed income experiencing an image change from a conservative plain vanilla asset class to one that is more exotic and exciting, offering investors a variety of strategies to increase yield and growth. However, investors must be conscious of the risks of historically low levels of interest rates, narrow credit spreads, and an apparent belief that a resurgence of inflation is years away.”
In Canada, the data found that search activity increased with Canadian equity remaining the most popular category in terms of number of searches, followed by global/international equity and fund of hedge funds.