Consolidation in European pension markets has led to more competition and fee pressure, with smaller players forced to exit the market, according to research by Cerulli Associates.
In a report published Tuesday, which was based on responses from 100 pension fund executives in the U.K., the Netherlands, Switzerland and Germany, asset owners with €485 billion ($535 billion) in assets said they preferred firms that can offer client relationship capabilities in the fund's home country.
More than half of respondents who were surveyed in June and July said pension funds pay attention to risk management tools, transparency and the ability to meet reporting requirements when selecting money managers.
In terms of asset allocation trends, in Europe 18.8% of the pension funds that Cerulli surveyed intend to increase investments in infrastructure debt and 17.5% intend to allocate more to investment-grade bonds.
German pension funds are most interested in investment grade and high-yield bonds, whereas U.K. plans tend to invest more in infrastructure and multiasset portfolios.
In contrast, 7.5% of the European pension funds that we surveyed reported that they plan to divest from hedge funds.
Some 5% of respondents plan to decrease allocations to bank loans and only 3.8% intend to invest more.
"The U.K. pension industry is becoming more competitive for asset managers due to the pooling of the local government pension schemes, the rise of defined benefit aggregators and defined contribution master trusts, and the increased use of fiduciary managers," said Justina Deveikyte, associate director on Cerulli's European institutional research team, in the report.
"However, these changes are creating opportunities. For example, fiduciary managers are more willing to invest in niche asset classes than small and mid-sized pension schemes. And in the DC space, the master trusts will be able to drive much needed innovation, such as the ability to include a broader range of asset classes in default funds."
Cerulli's survey respondents included 16 asset managers with €1.2 trillion in assets under management, interviewed February to May, and 22 investment consultants, surveyed in April and May, with €534 billion in fiduciary assets.
