Active long-only U.K. equity managers are taking stock of their business plans as British pension funds continue to look overseas for better risk-adjusted returns.
At least one — Martin Currie Investment Management Ltd., Edinburgh — has pulled the plug on its open-end U.K. equity strategies altogether. In a signal of the potential struggle ahead for other long-only managers, CEO Willie Watt said of the reason for closing the institutional U.K. active equity strategy this year: “Investors are focusing on global equities, so we saw that the future of U.K. equity as an institutional product was going to be very limited.”
Once the anchor of almost all U.K. institutional portfolios, U.K. equity is gradually being relegated to the sidelines, leaving many active managers struggling to hang on to assets even amid strong performance. Craig Gillespie, senior investment consultant at Towers Watson & Co., Reigate, England, said the move out of U.K. equity reached “a tipping point within the past several years and then just began to snowball.”
U.K. pension funds are reducing their total exposure — active and passive — to U.K. equity, although active managers have been hit hardest, according to consultants. A 2010 survey that included 331 U.K. pension fund professionals with aggregate assets of about £909 billion ($1.45 trillion) revealed only 2% of the respondents were planning to search for a U.K. equity manager in the following year, according to Greenwich Associates LLC. That figure was 8% just two years earlier.
“I think opportunities to gain new business in domestic equity are very few and far between,” said Marc Haynes, vice president and consultant at Greenwich Associates in London.
What's happening in the U.K. has implications for the U.S., where pension funds also are reducing active domestic equity holdings in favor of a more global approach. Udo Frank, global CEO for RCM Capital Management LLC in San Francisco, said U.K. pension funds have been gradually reducing their home bias for at least the past 10 years. “The U.S. is starting on that journey now,” Mr. Frank said.
According to data from Greenwich Associates, 23% of U.S. corporate pension funds and 27% of U.S. public funds plan to significantly reduce active domestic equity by 2012. Only 7% of U.S. corporate funds and 5% of U.S. public funds are planning to increase exposure to domestic equity.
“U.K. pension funds are further ahead ... in moving their U.K. equity strategies from core to satellite,” said Mr. Frank, whose firm manages about $146 billion in global assets.