LONDON--()--A permanent change is taking place in the UK institutional investment landscape with 80% of investors wanting to replace traditional diversification and portfolio construction techniques with new approaches to achieve investment objectives according to a new study conducted by OnResearch in June-July, 2012 and commissioned by the Durable Portfolio Construction Research Center of Natixis Global Asset Management (NGAM), the 13th largest asset manager in the world1. A long term commitment to alternatives is now clearly evident with the vast majority of U.K. institutional investors (87%) claiming it is “essential to invest in alternatives in order to diversify portfolio risk” and nearly two thirds (63%) believing that “locking into a long-only strategy is not in the best interest of their portfolios”.
“difficult to generate positive returns regardless of market conditions”
According to the survey, the majority of U.K. institutional investors (67%) say that “traditional assets are too highly correlated to provide distinctive sources of return” with 97% predicting it will be “difficult to generate positive returns regardless of market conditions” and 93% expecting it will be “difficult to both protect capital and grow assets”.
Managing Market Volatility Through Alternatives
UK institutional investors recognize the challenges of navigating today’s markets, with 84% saying it has been difficult to mitigate the impact of market volatility on portfolios and the same proportion saying it has been difficult to manage tail risk. However what is clear is the trend towards alternatives.
Almost all (97%) say increasing allocations to non-correlated assets was “effective” at reducing portfolio risk with liquid alternative investments such as global macro or long/short strategies identified as an effective way to manage portfolio risk. Alternatives are also triumphing from a returns perspective, with 83% of investors being pleased with the performance of their alternative investments.
Furthermore over two-thirds (67%) of investors have changed their approach to risk management in the past five years, further underlining their commitment to diversification through alternatives.
“This commitment to more diversified portfolios embracing alternative strategies is a pattern we have seen being repeated across regions according to our survey which we undertook globally.” said Hervé Guinamant, President and Chief Executive Officer, Natixis Global Asset Management – International Distribution. “However, UK pension funds have been at the forefront of making the case for change, seeking and finding solutions that are delivering more durable returns in challenging market conditions”.
Concerns Over Achieving Total Return Objectives
While all U.K. institutional investors (100%) agree that volatility provides investment opportunities, 67% find “meeting total return objectives” difficult with more than four in five (84%) finding mitigating the impact of market volatility difficult to achieve. The majority (57%) agree that there are very few tools available to adequately remove the “guesswork” associated with managing investments in today’s markets.
In response, many institutions are actively managing volatility on a day-to-day basis as they respond to the constantly changing market conditions. The major concern for investors is Europe, with 53% predicting the most significant source of market volatility over the next two years being contagion from the European debt crisis. More surprisingly, however, is that investors are also wary of the consequences of global regulatory reform, with 70% saying the staggered pace of implementing these reforms is creating more, not less, systemic risk.
“UK pension funds along with others, notably their US counterparts, have embraced alternative strategies for some time but what has changed is the tone of debate. Alternatives in their many guises are here to stay at the heart of investment strategy as the struggle to close deficits and meet long term liabilities intensifies in an uncertain economic and regulatory environment.” said Terry Mellish, head of UK/Ireland business and global consultant relationships at Natixis Global Asset Management (NGAM UK Limited).
The online survey of 30 institutional investors in the United Kingdom was conducted by OnResearch in June-July, 2012. Institutional investors surveyed manage or oversee corporate pensions, public/government pensions, fund of funds, sovereign wealth funds, insurance reserves/liabilities, and/or endowments/foundations. The median asset level managed by U.K.-based respondents was approximately £75billion. The U.K. survey is part of a larger global study of 482 institutional investors in 13 countries in Asia, Europe and the Middle East, as well as the U.S. A copy of the global survey highlights is available at www.ngam.natixis.com/pressroom.
About Natixis Global Asset Management, S.A.
Natixis Global Asset Management, S.A. is one of the 15 largest asset managers in the world based on assets under management.1 Its affiliated asset management companies provide investment products that seek to enhance and protect the wealth and retirement assets of both institutional and individual investor clients. Its proprietary distribution network helps package and deliver its affiliates’ products around the world. Natixis Global Asset Management, S.A. brings together the expertise of multiple specialized investment managers based in Europe, the United States and Asia to offer a wide spectrum of equity, fixed-income and alternative investment strategies.
Headquartered in Paris and Boston, Natixis Global Asset Management, S.A. has assets under management totaling $711 billion (€560 billion) as of June 30, 2012.2 Natixis Global Asset Management, S.A. is part of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Global Asset Management, S.A.’s affiliated investment management firms and distribution and service groups include: Absolute Asia Asset Management; AEW Capital Management; AEW Europe; AlphaSimplex Group; Aurora Investment Management; Capital Growth Management; Caspian Private Equity; Darius Capital Partners; Gateway Investment Advisers; H2O Asset Management; Hansberger Global Investors; Harris Associates; IDFC Asset Management Company; Loomis, Sayles & Company; Natixis Asset Management; Natixis Multimanager; Ossiam; Reich & Tang Asset Management; Snyder Capital Management; and Vaughan Nelson Investment Management.
Natixis Global Asset Management, S.A. also includes business development units located across the globe, including NGAM UK Limited, which is authorised and regulated by the UK Financial Services Authority.
The information contained herein is intended for information purposes only and does not constitute an offer of financial services or investment advice.
1 Cerulli Quantitative Update: Global Markets 2012 ranked Natixis Global Asset Management, S.A. as the 13th largest asset manager in the world based on assets under management as of December 31, 2011.
2 Assets under management (AUM) may include assets for which non-regulatory AUM services are provided. Non-regulatory AUM includes assets which do not fall within the SEC’s definition of ‘regulatory AUM’ in Form ADV, Part 1.