The number of bond mandates awarded by Towers Watson’s clients worldwide in 2009 increased by over 50% from 2008, which was already over 20% higher than the year before. The most significant increase in demand was for US bonds, with twice the number of selections in 2009 as in 2008. The firm’s clients also continued during 2009 to opt for passive mandates which have increased four fold in the past two years.
“Increased activity in the bond area was a reflection of the number of interesting opportunities at the beginning of 2009, particularly in credit, but specifically loans and securitised credit, says Craig Baker, global head of manager research at Towers Watson.
In the passive area, investors are increasingly looking for more efficient market exposures and are reviewing the indices underlying their existing investments, with a view to seeking better alternatives. There has been a great deal of development within indexation, which is increasingly offering passive investors a broader range of options and the expectation of better risk-adjusted returns.”
In 2009, Towers Watson’s clients showed continued interest in direct hedge funds with a 10% growth in the number of mandates awarded compared with the previous year, while demand for fund of hedge fund mandates fell. Mandates for direct hedge funds now account for 85% of all hedge fund searches (up from just over half in 2008), with long/short equity and multi-strategy being the most popular.
“We believe in the ability of highly skilled hedge funds to adapt to a changed environment and generate good performance for our institutional investor clients, says Craig Baker. We believe that the larger institutional funds will continue to invest directly rather than through funds of funds, particularly as we see positive developments on fees for institutional clients, which are increasingly better aligned with investors’ interests.”
Last year Towers Watson’s clients awarded around the same number of real estate mandates as the previous year. According to the firm, in 2009 there was a trend towards investing internationally, especially by UK-based investors, rather than the historical focus on domestic real estate. The number of mandates awarded in private equity fell by 80% in 2009 compared with an increase of more than 50% between 2007 and 2008, reflecting the fact that fewer funds came to market in that period. Direct allocations remained more popular than fund of funds and accounted for 80% of private equity selections in 2009, confirming a trend which started three years ago. The firm awarded four new infrastructure mandates in 2009 compared with ten the year before.
While still dominant, the number of equity mandates fell 23% in 2009. Global equity mandates accounted for 30% of equity selections and that included a significant number of long-term long-only equity mandates. Manager selection activity globally at Towers Watson exceeded 600 selections in 2009, reflecting US$68 billion of assets moved, compared with US$65bn in 2008.
D.C.