Manager search activity up sharply in 2009

Canada
Canadian search activity increased from 124 to 137 in 2009, with defined contribution (DC) activity accounting for much of it. Global equity searches increased from 36 to 50 while fixed income and real estate searches jumped considerably (from 8 to 23 and from 1 to 7, respectively). Searches in domestic equities dropped from 38 to 22.

The spike in alternative asset allocations was a result of increased demand for liability driven investing, notes Sharon Wilson, Mercer’s head of manager research for Canada and Latin America. “Liability-driven solutions remain a key focus for Canadian defined benefit (DB) plan sponsors and we anticipate more interest in de-risking strategies and operational due diligence going forward,” she says. “As DB plan sponsors look to diversify their portfolios we expect to see sustained interest in a range of alternative asset classes.”

U.S.
U.S. searches generally ran at similar levels to 2008. In 2009, 126 (DB and other non-DC) searches were conducted compared to 123 in 2008. Assets placed fell from US$14.7 billion to US$11.2 billon, and the number of DC searches continued to outpace DB searches, increasing from 151 to 173 in 2009.

The total number of global equity searches (44) in both DB and DC plans increased compared with 2008 (39). Both plan types pursued continued diversification among equity styles and capitalizations.

According to Terry Dennison, U.S. director of consulting for investment consulting with Mercer, sponsors replaced managers who significantly missed their benchmarks during the market decline and failed to recover when the prevailing market psychology changed.

And Mercer’s global head of manager research Andy Barber expects to see a growing interest in liability driven investment as defined benefit pension clients seek to manage their assets with closer reference to their liabilities.

“The trend towards global equity at the expense of domestic equity is not likely to slow down, whereas on the fixed income front there are now fewer obvious short-to-medium term opportunities,” he says. “However, we do expect to see an increased interest in higher yield products as the continued search for returns causes clients to venture away from mainstream markets.”

Global
Global equity was the dominant search category in 2009, with 191 searches accounting for approximately $25.8 billion in assets placed, an increase of 23% from 155 searches and $23.3 billion placed in 2008.

Searches in global fixed income more than tripled to 92 searches, from 25 in 2008, as clients made allocations to short-dated credit and convertibles. Real estate searches rose to 67, up from 32 in 2008 and more in line with the pre-credit crisis days of in 2007 in which there were 62 searches.