Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. INVESTING & PORTFOLIO STRATEGIES
November 25, 2013 12:00 AM

New active strategies to make others obsolete

Traditional equity and fixed-income firms will suffer, report predicts

Christine Williamson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Rohanna Mertens
    Daniel Celeghin says the categories CQA names are for investors with growing risk appetites.

    Managers of outcome-oriented, active investment strategies — credit, unconstrained equity, hedge fund, private capital, real assets and multiasset-class solutions — can expect a $3.4 trillion windfall from institutional and individual investors globally by the end of 2018.

    That new cash infusion will come at the expense of traditional active equity and fixed-income money managers, which are predicted by Casey, Quirk & Associates LLC to lose an aggregate $1.8 trillion during the period.

    Passive managers can expect to bring in $989 billion as a group into traditional indexing strategies during this time.

    The forecast is from a new report, “Life After Benchmarks: Retooling Active Asset Management,” provided to Pensions & Investments by the Darien, Conn.-based money management consultant. The conclusions are based on 120 interviews with industry executives, CQA survey data and asset-revenue growth projection modeling.

    New active strategies, as CQA labeled the six investment categories, will appeal — strongly — to investors “whose appetite for risk ... is significantly increasing,” Daniel Celeghin, a Casey, Quirk & Associates partner and the report's co-author, said in an interview.

    “Most existing active investment strategies are becoming obsolete. Investors' requirements and frameworks are moving away from rigid benchmark-based allocations towards risk-factor and outcome-based mandates,” the report said.

    Standard Life Investments, BlackRock Inc., Pacific Investment Management Co., AQR Capital Management LLC and larger alternative investment managers are firms that sources predicted will be winners in the new active investment environment of the future.

    These firms have substantial investment infrastructure, client consulting capabilities and a head start in establishing, growing and combining benchmark-agnostic strategies for clients, industry sources said.

    The pace of adoption of outcome- and factor-based allocation approaches is picking up among institutional investors.

    “This is a trend that we absolutely agree is happening now and will strengthen,” said Erik L. Knutzen, chief investment officer of investment consultant NEPC LLC, Cambridge, Mass.

    “Unconstrained strategies that utilize the whole range of tools from shorting to derivatives will gain ground as style box lines are crossed or the boxes entirely disappear,” Mr. Knutzen said.

    A thriving future, or indeed mere survival, will depend on a manager's ability to adapt its ”investment engines to new demands by introducing tools and investment approaches from the alternative investment world,” the report said.

    Sources were not optimistic about the prospects for traditional long-only equity and fixed-income shops without alternative investment capabilities and a willingness to build, buy or poach what they need to get them. Multimanager affiliate investment firms that are loath to trim non-performers from their stables and independent traditional investment managers also are on sources' failure-to-thrive lists.

    Two camps

    Money managers split roughly into two camps, said Suzanne L. Duncan, senior vice president and global head of research in State Street Corp.'s Center for Applied Research, Boston.

    About half of the 200 or so investment company executives Ms. Duncan interviews each year “realize that they are on the losing side and are embracing the trend, making strategic changes to transform themselves into new active managers,” she said.

    The other 50% exhibit to a greater or lesser degree the “ostrich effect, not recognizing — consciously or unconsciously — that this asset allocation change is deep and secular rather than cyclical. They think they can just ride the downward cycle and come back when it's over,” she said.

    But “strong asset growth is not likely for traditional managers, even traditional hedge fund managers,” Ms. Duncan said. She based that prediction on the center's analysis that over the next 10 years, 60% of institutional investors are likely to invest significantly more in private market investments, such as private equity, private real estate and infrastructure.

    A common theme among the firms that can already count themselves among the new active managers is swift, deliberate expansion of investment management capabilities.

    For example, The Carlyle Group LP's legacy private equity strategies held $62 billion as of Sept. 30, but newer investment categories are catching up. As of that date, Washington-based Carlyle managed $39 billion in real assets and a combined $35 billion in global market strategies (credit and hedge funds).

    Carlyle's client investment solutions unit managed $48 billion as of Sept. 30 using combinations of the three other categories, as well as third-party investment strategies, said Glenn Youngkin, managing director and chief operating officer.

    “We are preparing to offer a full complement of alternative strategies,” Mr. Youngkin said, noting Carlyle acquired real estate funds-of-funds manager Metropolitan Real Estate Equity Management LLC, and has made it known that a hedge funds-of-funds business would be of interest.

    Steadily moving away

    Standard Life Investments, Edinburgh, “first saw the possibilities in solutions-based investment 10 years ago,” said Colin Clark, director, global client group.

    “Institutional investors are steadily moving away from this sort of static asset allocation to a model that is far more focused on matching liability or other outcomes like low volatility, absolute return or inflation protection,” which is what SLI's growing suite of multiasset-class solutions provides, Mr. Clark said.

    SLI's prescience paid off. About $50 billion of the firm's total of $300 billion is managed in its global absolute return strategy, the firm's flagship solutions vehicle.

    Taking what Mr. Clark called a “conveyor belt” approach in response to client demand, SLI launched a now $1 billion absolute return global bond strategy and will open its global focused solutions strategy in the first quarter of 2014 to offer investors a higher return/higher volatility version of the multiasset-class approach.

    “Investors are looking for managers who can do more than one thing in a relationship,” said Robert L. Goldstein, a senior managing director and head of BlackRock's institutional client group and head of BlackRock Solutions in New York.

    “BlackRock has been building up its capability for years in all six of Casey Quirk's new active strategies,” Mr. Goldstein said. “Have we been voting with our feet about where the institutional investment world is going? Definitely yes,” he added.

    But Mr. Goldstein said the idea that old-style active management will disappear is “naïve. Traditional active management will still have a place in institutional portfolios, but it will be much less of a focus than it is now.”

    Sabrina C. Callin, a managing director in PIMCO's Newport Beach, Calif., headquarters, agreed.

    “I don't think traditional fixed income will completely go away. Institutional investors are much more willing to think differently about fixed income. More investors are giving PIMCO the latitude to manage their portfolios across the full range of strategies from our traditional total return bond strategy through our unconstrained bond approach to hedge funds and non-traditional credit,” Ms. Callin said. n

    Related Articles
    44% of institutional investors invest in hedge fund managers' long-only strateg…
    Fitch Ratings: 70% of absolute-return funds post positive returns
    After rough 2013, active managers might get a break
    Passive funds see more action as index options gain popularity in DC
    Declining high-yield market making money managers nervous
    Multiasset interest leads to a hiring wave
    Recommended for You
    More funds testing water on crypto-related assets
    More funds testing water on crypto-related assets
    Money managers eager to make leap to opportunity zone investing
    Money managers eager to make leap to opportunity zone investing
    Index investing: Not as passive as you might think
    Index investing: Not as passive as you might think
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    Are Factors a Thing of the Past?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing