A move in institutional investing back toward active equity management is dovetailing with moves by pension funds to look toward more outcomes-based investments focusing on matching expected future liabilities and less on just capital accumulation, sources said.
But rather than a pendulum swing from passive investing back to fundamental active management, the shift back to active incorporates a wide variety of equity strategies — including some investing strategies normally traditionally categorized as alternative, such as private equity. Active fixed income, meanwhile, remains a favorite among institutional investors, sources said.
Among the varieties of equity strategies being used in growth-oriented portfolios and allocations are smart beta and factor-based strategies, risk premium, low volatility, even hedge funds and currency strategies.
For example, Stockholm-based AP7, which has more than 400 billion Swedish kronor ($50.4 billion) in assets, is increasing its active exposure by 10 percentage points. A spokesman there said both public and private equities are a focus for embracing active management.
"That makes sense," said Kevin Quirk, principal at money management consulting firm Casey Quirk by Deloitte, Darien, Conn. "If you think about a big umbrella of investors trying to solve their problems, the overarching theme is dictating how they allocate their assets — capital preservation, capital accumulation, income, liquidity. We've seen broad movement for investors to align more with those outcomes. A narrow definition of allocations was used years ago," such as U.S. large-cap equities and active or passive management.
"Institutional investors are now taking a more holistic approach," Mr. Quirk said. "Rather than bundling public equity separately, they're bucketing them together in a broader movement around outcomes."
And matching liabilities is no longer just associated with corporate defined benefit plans. J. Tyler Cloherty, Darien-based senior manager at Casey Quirk, said public pension funds are moving back to active to meet their liability needs.
"That outcome is staring them straight in the face," Mr. Cloherty said. "That's a driving factor." And Philip Anker, New York-based managing director, North America, at Investec Asset Management, agreed, saying that for active management today, "the benchmark is the liability, not the return."