Global managers have a tendency to focus on large-cap equities and are missing out on higher return opportunities that small-cap and midcap companies have by virtue of their potential for growth, said Gary Dowsett, senior investment consultant for Watson Wyatt LLP, London. Smaller and midsized companies tend to grow faster than larger companies and are tied to their local economies, the opposite for large-cap companies.
Mr. Dowsett noted the move to regional mandates is not a trend away from global equities. This is more about a way of "complementing" global managers so as not to overlook other opportunities, he added.
Jens Elkjaer, head of equities for Pen-Sam, said the Danish fund has divided its equity portfolio, which is between 15% and 25% of total assets, between domestic and global. The global part is then portioned into North American equities, European equities and Asia-Pacific equities. Regional active managers are the best way to generate higher returns for the plan, said Mr. Elkjaer. Pen-Sam is seeking to find higher alpha through more active mandates, he added.
The plan still takes a global view, Mr. Elkjaer emphasized; the global portfolio's overall benchmark remains the Morgan Stanley Capital International World Developed Markets index. Individual regional mandates will be judged against their corresponding parts of the benchmarks: MSCI North America; MSCI Europe; and MSCI Asia-Pacific.
In addition to hiring AXA and Capital International, Mr. Elkjaer said officials had selected two managers for the 600 million kroner total Asia-Pacific portfolio, but he would not identify them because contracts have not been signed. Two managers also are being sought for the 2.5 billion kroner total U.S. equities portfolio. And a search is under way for one manager to handle the 306 million krone emerging market portfolio.
State Street Global Advisors, Boston, runs 1.4 billion kroner in global enhanced equity, Mr. Elkjaer added. That mandate will not be changed under the new plan.
The majority of its 2.2 billion kroner in domestic equities are run in-house with small-cap run externally by Alfred Berg Asset Management and Fundamental Asset Management, both of Copenhagen. Before the change, global equities were run by a Danish manager Mr. Elkjaer declined to name. He said the firm still runs Pen-Sam money in other asset classes.