New Mercer report on global investment trends

New Mercer report on global investment manager search trends

§ Search activity picks up globally from the depressed levels seen in 2008 – Australia, UK and Continental Europe see significant increase
§ In New Zealand, manager search activity increased from 26 to 32 and assets placed went up by 75% - from US$276 million in 2008 to US$483 million in 2009.
§ Global/international equity remains the dominant search activity reflecting a continuing trend towards globalising equity exposures
§ Fixed income, bonds and real estate see the highest increases in search activity as investors react in part to the low valuations of corporate bonds and certain commercial real estate markets
§ Value of assets placed through Mercer’s manager search activity totalled US$97.2 billion in 2009, up from US$93 billion

Manager search activity increased in 2009 as institutional investors responded to opportunities arising from market falls over 2008 and early 2009, according to data released by Mercer. Its 2009 Global Manager Search Trends report gives insight into institutional investment manager hiring patterns and trends across the world, and is based on activity reported through its global client database.

Overall, searches ran at considerably higher levels than in previous years, and assets placed reached their highest levels yet. During 2009, Mercer advised on 826* manager searches across the world, up by 22% from 676 in 2008. The searches represented US$97.2 billion in assets placed by 406 institutional investors.

The most notable increases in 2009 were seen in Australia, where the number of searches doubled compared with the previous year. In both the UK and Europe search activity also rose considerably, whereas in North America the increases were relatively small in comparison. In Asia, searches decreased by a third.

Global equity remained the dominant search category, with 191 searches accounting for approximately US$25.8 billion in assets placed, up by 23% from 155 searches and US$23.3billion placed in 2008. Searches in global fixed income shot up to 92 searches, from 25 in 2008, as clients made allocations to short dated credit and convertibles. The number of real estate searches (67) adjusted back up to pre-credit crunch levels from 32 in 2008 and 62 in 2007. Most regions observed a decline in searches in domestic equity.

Andy Barber, global head of manager research at Mercer, commented: “The decline in domestic equity allocations and increase in global equity searches highlights a continuing trend towards a more global approach to equity management. The significant increase in fixed income search activity reflects our observations to clients that medium-term opportunities were available in short-dated global credit and convertibles.

“Although there are regional variations, we do sense a greater investor appetite for taking advantage of dislocation and low valuations than in previous market down-turns. For both corporate bonds and real estate an element of pent-up demand was realised in 2009 as many investors had been waiting for more realistic prices before committing new money.”

Asia-Pacific

Search activity in Asia declined from 60 in 2008 to 40 in 2009, however assets placed increased from US$17.6 billion to US$19.2 billion. Across the region, interest in higher-return areas such as private equity and fund of hedge funds has reduced from previous years.

Marianne Feeley, Head of Manager Research, Asia Pacific, said: “Search activity across Asia remained muted last year as investors waited for the financial storm to clear. Searches were mainly limited to switching, with no new net injection of funds into the capital markets.”

The notable exception in the region was Australia, where search activity increased to 120 in 2009 from 61 in 2008. However, the amount of assets placed decreased from US$ 15.2 billion to US$7.7 billion, reflecting a trend for smaller placements. Fixed income (including cash) saw the largest increase in search activity with searches rising from 7 in 2008 to 36 in 2009. Equity also saw a rise in searches with Australian equity increasing from 18 to 24 and global equity from 12 to 23.

Ms Feeley commented: “The rise in fixed income search activity can be attributed to opportunities in the sector brought about by dislocations in global financial markets. In particular, credit was the most sought after sub-sector within fixed income as both clients and consultants recognised the attractive valuations within the space.”

In New Zealand, manager search activity increased from 26 to 32 and assets placed went up by 75% - from US$276 million in 2008 to US$483 million in 2009. Traditional sectors continued to dominate, although there was an element of greater diversity in searches, including the more niche area of hedge funds and specialist fixed interest mandates; both had three searches each. “Interest in ‘alternative’ asset classes is slowly building, although investors remain conscious of liquidity and diversification challenges as well as suitable product availability,” said Ms Feeley.

UK & Europe
In the UK, search levels returned to pre-credit crunch levels, increasing to 245 from 189 in 2008 and 242 in 2007. Total assets placed rose from US$26.1 billion in 2008 to US$41.9 billion (2009).

The main increase was reflected through an increase in global fixed income searches (up from only 2 to 45 2009) and real estate searches (up from 7 to 28). Searches in global equities also increased, from 48 to 57, and assets placed here were close to US$13.9 billion, up from US$7.1 billion in 2008. The number of domestic equity searches was considerably lower this year, with UK equity searches falling from 17 to 8 in 2009. At US$488 million assets placed, UK equities dropped to a third of 2008 levels.

Search activity across the rest of Europe increased in 2009, although assets placed continued to fall. The most common search activities were European and global fixed income with a respective 24 and 21 searches, and global equity (21).

US & Canada
Overall, US searches ran at similar levels to the previous year, although the year was sharply divided as the markets fell for the first half and then rallied in the second half. In 2009, 126 (DB and other non-DC) searches were conducted compared to 123 in 2008. Assets placed fell from US$14.7 billion to US$11.2 billion. The number of DC searches continued to outpace DB searches, increasing from 151 to 173 in 2009.

The total number of global equity searches (44) in both DB and DC plans increased compared with the previous year (39 in 2008). Continued diversification, among equity styles and capitalisations, remained a common denominator in both plan styles.

Copies of Mercer’s Manager Search Trends: 2009 Year-End Report can be obtained at www.mercer.com/managersearchtrends. The full report includes country-specific commentary for France, Germany, Ireland, The Netherlands, Portugal, Spain and Switzerland, in addition to the countries and regions highlighted in this release.

ENDS

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