LONDON — Unconstrained mandates, in which active managers are not measured relative to market benchmarks, are increasingly popular among British pension plans.
Two large investment consultants are reporting a surge in interest for the mandates, which use long-only, absolute-return strategies.
According to Watson Wyatt Investment Consulting, Reigate, demand for unconstrained mandates "accelerated significantly" during 2004, growing 30%. Pension plans advised by the firm have awarded 40 such mandates in the last three years.
Unconstrained mandates are not measured relative to a market or peer group index and typically seek a premium over a fixed target — for example, five percentage points over inflation, said Nick Watts, European head of investment consulting at Watson Wyatt.
The mandates also tend to be awarded over longer periods than conventional mandates. Since October 2003, Watson Wyatt's U.K. clients have awarded 15 10-year mandates.
Hewitt Associates, London, reported that in the past 18 months, 20 clients with combined pension assets of £9.6 billion ($18.3 billion) allocated 12% of total assets on average to mandates for equities without traditional benchmark constraints.
Neither firm was willing to name clients or give specific details of the mandates on which they advised.