U.K. institutional investors are moving away from benchmark-oriented regional and country-specific equity strategies to take best advantage of manager skill and risk budgets.
Interest in unconstrained equity is also building in Australia, continental Europe, Asia and Canada, but not so much in the U.S.
As a result of mounting popularity in the U.K., benchmark-oriented managers are rethinking their approaches and offering unconstrained global equity strategies to stay competitive.
“People have been concerned about the returns they've gotten from equities over the past 10 years (and) are looking for better ways to invest in equity,” said Debbie Clarke, principal and global head of the manager research boutique at Mercer LLC in London. “(Traditional) benchmark managers could find life very tough.”
Principal Global Investors plans to roll out an unconstrained global equity strategy in July. Although the strategy will be offered to clients around the world, “growth of unconstrained approaches has been particularly strong in the U.K.,” said Stephen Holt, principal and head of institutional business at Principal Global Investors (Europe) Ltd., London. Principal manages $4.1 billion in institutional equity assets for European clients.
Another manager responding to the trend away from benchmark-focused approaches is Mirabaud Investment Management Ltd., London, which is recruiting a global equity team to run unconstrained strategies.
“Basically, there are no new mandates at all allocating money to active U.K. equity. It's absolutely dead,” said John Owens, director at Mirabaud, which manages £2 billion ($2.9 billion) in institutional assets.
“Global unconstrained is the flavor of the month.”
Investors typically see unconstrained as a logical extension of going global. But many U.S. institutional investors, by contrast, split equity allocations into domestic and international holdings — although the global movement is gaining strength.
“That debate (over domestic/international vs. global) is behind us here (in the U.K.),” said Marina Lund, head of marketing at unconstrained manager Longview Partners Ltd., London. “Global is engrained now.” Longview manages $5.5 billion, 80% of which is institutional.