New research from Towers Watson shows that the consulting firm's institutional investment clients allocated more than $8 billion to smart beta strategies in 2014 globally, bringing the total exposure in these strategies to around $40 billion in 550 portfolios, across a range of asset classes.
The consultant's global investment manager selection data show clients' exposure to smart beta strategies doubled from $20 billion at the end of 2012.
Investment manager selection activity at Towers Watson exceeded 880 selections in 2014 globally, reflecting around $72 billion of assets moved for more than 300 clients. This compares to around $57 billion in assets moved for around 790 selections in 2010, the only year Towers Watson provided for comparisons for some data.
Fixed-income hires by the firm's clients in 2014 totaled $34.8 billion, compared to $19.3 billion in 2010. Global bond mandates led the way ($12 billion), followed by U.S. bonds ($7.3 billion) and Australian bonds ($3.4 billion).
In 2014, $4.5 billion was invested in developed markets alternative credit and $400 million in direct lending and structured credit opportunities. During the year, $1.5 billion was invested in smart beta in the bond area, compared to $500 million in 2010.
In equities, global mandates continued to be the most popular with Towers Watson's clients in 2014 with about $7 billion in mandates, followed by U.S. large-cap equity ($3 billion) and U.S. small-/midcap equity ($2 billion).
Emerging markets equities attracted $1.8 billion, while $1 billion was invested in global ex-U.S. equities. The company's clients invested $500 million in long/short equity in 2014.
In total, equity manager selections in 2014 accounted for $20.3 billion in assets, compared to $20.6 billion in 2010.
The data show that last year, Towers Watson's clients carried out diversifying strategy selections worth $10 billion, up from $7 billion in 2010.
Among diversifying strategies during 2014, real estate attracted the most interest — more than $3 billion — followed by infrastructure at $2.3 billion, compared to just $59 million in 2010.
Also in 2014, liquid diversifying strategies attracted $1.7 billion, of which more than one-third is in smart beta.
After deploying significant capital in private equity in 2013, Towers Watson's clients favored more niche, illiquid strategies to a more traditional buyout approach. As a result, private equity attracted fewer assets than in previous years: $415 million in 2014, compared to $714 million in 2010.
While investors were seeking out fixed income and global equities in 2014, a BlackRock survey predicts that in 2015, large institutional investors are likely to make significant shifts in asset allocation toward alternative investments and less traditional fixed-income strategies that aim to provide returns across varying market conditions. Respondents predicted these moves in response to divergent market and macroeconomic trends. BlackRock polled 169 institutional investor clients representing $8 trillion in assets.
