Investors weigh axing managers after disappointing first half

Pension funds and other investors are axing or considering terminating relationships with external money managers that delivered disappointing performance in the first half of the year.

Consultant bfinance's latest survey of assets owners covered 368 investors representing a total $11 trillion. Of respondents, 52% were pension funds, 12% sovereign wealth funds and other institutions, 9% were endowments or foundations, and the remaining respondents were from insurance companies and family offices.

Of the pension fund respondents, 20% said they are either very likely or already in the process of terminating external managers, with disappointing 2020 performance representing a significant contributing factor to that decision, a report of the survey said.

A further 34% of pension fund investors are somewhat likely to terminate managers on that basis. The remainder said they were unlikely to do so.

Among sovereign wealth fund investors, 50% said they were very likely or were already firing managers based on disappointing performance year-to-date; while 50% said they were somewhat likely to do so.

For endowment and foundations respondents, 21% were likely or already cutting managers, 36% were somewhat likely to fire managers and the remainder were unlikely to do so based on performance so far this year.

Views on performance varied across strategies, with most investors were happy with the results delivered by their actively managed exposures vs. their benchmarks.

Certain asset classes disappointed, with 53% of emerging market debt investors, 48% of hedge fund investors and 64% of investors in alternative risk-premium strategies dissatisfied with returns.

Looking forward, distressed and opportunistic strategies are a focus, with 33% of respondents already investing in such funds. A further 22% said they are interested in pursuing such investments in the coming months.

In general, the survey found a "cautious optimism" among investors, with 82% of respondents satisfied with how their investment portfolios performed over the first half of the year.

However, some investors plan to learn lessons from the COVID-19 pandemic and its impact on portfolios, with 35% making changes to risk management and 24% set to change strategic asset allocations this year.

"The first half of 2020 has been extremely challenging for investors of all types, and undoubtedly there is more volatility and upheaval in store as the true nature of the economic impact of COVID-19 becomes clearer," Kathryn Saklatvala, head of investment content, said in a news release accompanying the report.

"While such periods are uncomfortable, they are also crucially informative for investors seeking to understand the diversification and resilience of portfolios, the discipline and skill of asset managers, and the weak-points in risk management capabilities or processes," she said. "It is great to see the majority of investors reporting satisfaction with overall portfolio performance, risk management and active management results across the majority of asset classes, although there are important changes underway on all fronts."