Pension funds sharply curtailed their money manager searches and hires in the third quarter, as fund executives tried to absorb the effects of the market turmoil.
An analysis of second- and third-quarter published reports of pre-searches (asset allocation or investment policy changes that could lead to manager shifts), searches and hires, and additional allocations to existing managers showed:
•Hires of new managers were down 32%, to 259, in the third quarter, compared with 382 in the prior quarter;
•Searches declined 28%, to 95, in the three months ended Sept. 30, from 132 in the second quarter;
•Additional allocations to existing managers dropped 38% to 15 in the third quarter from 24 in the previous quarter; and
•Asset allocation shifts or investment policy changes that usually lead to portfolio reconstruction and manager changes were down 37%, to 27 from 43.
Only manager terminations increased: up 39% during the quarter to 39.
The most notable results of a comparison of pension fund activity in the first nine months of 2008 vs. the first nine months of 2007 were a 35% drop in terminations year-to-date Sept. 30 and a 27% drop in additional allocations to existing managers.
Investment manager hires declined 8%, but search activity was up 8%.
Given the extreme volatility of global markets in September and the first half of this month, plan sponsor inaction seems likely to only grow during the remainder of the year, some sources predict.
“In the institutional world, everything is so frozen, so seized up,” said Deborah D. Boedicker, director of marketing at Strategic Investment Group, Arlington, Va., a manager of managers.
“I don't hear panic in pension fund (executives') voices. Instead, I'm hearing, "This is not good; we've never seen anything like this before.' And they are saying that they have to wait until the dust settles — whenever that will be — before they can do any rebalancing or look at adjusting their asset allocations,” Ms. Boedicker said.
Others think pension fund boards might make changes during the remainder of the quarter.