Institutional Asset Management

Q4 ’12 INSTITUTIONAL ASSET MANAGEMENT MARKET OVERVIEW ContentsIn the News….…………………………….. 3The Macro Environment………………….. 12The LDI Landscape ………………………. 15Fiduciary Management………………...….. 18People Watch..……………………………… 22 In the NewsUK Pension funds – another quarter of negative headlines and wrangling over reform The quarter saw continued coverage of rising UK pension fund deficits against the backdrop of wrangling within the EU for pension reforms. In the UK, talks continued on the method of calculation of RPI, and therefore inflation, which has an impact on how liabilities are calculated. Quantitative easing by the BoE also impacted negatively and several consultant and asset manager surveys and reports highlighted increasing focus on the low interest rate environment providing an obstacle to de-risking.Following Mercer’s Pensions Risk Survey in Q3 showing inflation adding £5bn to FTSE 350 defined benefit schemes, Towers Watson added to the negative outlook with analysis of underfunded schemes. TW reported in October that the £2tn of liabilities will need 30 years to be matched by index-linked gilts, considered the ‘best’ instrument as a hedge against inflation, which currently stands at around £500bn. This is three times longer than the UK Pension Regulator’s estimate of 10 years. The NAPF has begun to look at other ways of matching liabilities with ‘safe’ assets such as a debt market linked to infrastructure projects. To compound the negative sentiment of pension news, the Pensions Regulator and PwC both released research on deficits. According to the regulator’s analysis, three quarters of UK schemes in deficit will take longer to pay them down and require ‘extra flexibilities’ such as a three year extension to their recovery plans or a 10% increase in payments. PwC released research showing similar findings with c90% of schemes surveyed in deficit and c60% with deterioration in their funding status since last valuation. Interestingly, the PwC survey showed that for schemes with the largest deficits, around 80% had chosen to use additional contributions towards reducing the deficit, whilst only just over 40% had increased the length of their recovery plan.3 The EU’s IORP reform directive continues to provide significant comments and statements from member state governments and pension bodies as well as asset managers and consultancies. The Dutch estimate that the proposed reforms would add an extra €80bn to their pensions’ liabilities is dwarfed by the €330bn increase the NAPF estimates it will cost UK schemes. The UK, Netherlands, Germany and Ireland continue to attempt to block these proposals and Q1 2013 will likely see developments from both sides. The outcome of any decision will have significant impacts on pension calculations in the UK.Schemes tackle rising deficits In line with the reported research from PwC, a number of household names have appeared in the news in Q4 to highlight their action to reduce the deficit. Invensys attracted positive headlines with the announcement that almost half the proceeds of a £1.7bn sale of its rail business to Siemens, around £625m, would be used to plug its £490m underfunded pension scheme. This will save the business around £40m in annual payments earmarked to plug the gap. The deficit had risen by over £330m in 18 months and the news, along with the remainder of the sale proceeds being paid to shareholders via special dividend, was welcomed by investors with a share price spike of almost 40% at the end of November. Marks & Spencer announced that a conservative investment strategy with 70-75% invested in gilts and fixed income had paid dividends and that the deficit had reduced from £1.3bn to £290m as at March 2012. This more than halved its annual cash contributions to around £28m and was again welcomed by investors. Tate & Lyle announced a £347m buy in deal with LGIM to continue the trend of corporate hedging against deficit increased. Cookson and Home Retail Group had made similar moves earlier in the year and JLT reported around £900m of buyout deals had been done in Q3 alone. The insurer LV= announced an £800m longevity insurance contract with Swiss Re which covers around 5,000 members of its pension fund. In March, BT announced it was to pay £2bn cash towards its scheme deficit as well as nine further annual payments of £325m beginning in March 2013. However, due to a reduction in the discount rate used for its valuation, the scheme reported in November that the deficit had risen by 63% in just 6 months to £3.1bn as at 30th September. Recent changes to the board of the scheme points to continued efforts by the business to reduce the deficit.4 The PPF outperforms In October, the PPF reported that in the year to March 2012, it had shown a market- beating 25% return on investment. According to BNY Mellon, the median return for pension fund investment was just under 10%. The figures mean that the fund had a surplus of £1bn (107% funded) to March 2013 and not only provides comfort for the pensioners, but is also a tonic for the DB schemes contributing to the PPF as it chose not to apply a full 25% increase to the £550m levy in 2012-13. Instead, a 15% increase will take the payment to £630m in 2013-14 but may have to rise depending upon future gilt yield levels and performance. In September 2012, the PPF reported the funding ratio had fallen to 102% and it was likely that the PPF levy may rise by as much as 10% from March 2014. The fund also announced it had hired seven new managers to invest in farmland and timber assets, increasing the £12bn lifeboat scheme’s exposure to alternative investments.NAPF continues to evolve The National Association of Pension Funds has created two new pension scheme forums for DB and DC schemes with the aim of meeting three to four times per year to discuss industry issues and develop policy ideas. Mark Fawcett, the high profile CIO of the governments National Employment Savings Trust will chair the DC forum and Joyce Martindale, formerly Head of Investment and Change Management at RPMI until her departure was announced in December, will chair the DB panel. It has also acquired Lord Hutton, the well known author of the report into public sector pension reform, onto its Retirement Policy Council to help shape its policies and he is joined by Richard Butcher, MD of Pitmans onto the same board. Kerin Rosenberg, CEO of Cardano and John Walbaum a Partner at Hymans have both been appointed to the NAPF Investment Council.NEST shows good form The government’s flagship low cost, not-for-profit pension scheme for private employers has received positive coverage in the quarter thanks to it attracting over5 100 large companies, including the well known brand names of the BBC, BT, Pizza Express, Rank Group, Travelodge and McDonald’s. It was widely reported that McDonald’s had added up to 35,000 hourly paid workers to the scheme. The good news has reduced concerns that NEST would be unable to cover costs and repay the £170m start up loan from the government.DC market dominated Spence Johnson, the industry market intelligence firm, reported that just seven firms dominate 84% of the £112bn available for investment by the new style DC pension funds in the UK; two passive firms BlackRock, LGIM and five active; Baillie Gifford, JP Morgan AM, Standard Life, Schroders and Invesco Perpetual. The report also highlights that a further 15 firms control 9% of the market with the remaining 7% split between the 77 other firms offering DC investment. Firms such as BlackRock, Pimco and Alliance Bernstein are reported to be yielding increased inflows by restructuring their models for this market by taking the proposition directly to the end-user fund. In Q3, Alliance Bernstein announced an inflow of £1bn to its DC pensions offering in less than a year. AB has attracted several high profile appointments during the year including the £4.5bn multi-employer Pensions Trust awarded in Q4 to its SmarterPensions service for AE as well as British Foods for its DC scheme in Q3.Towers Watson moves into fund management The acquisition of Oxford Investment Partners in December will move one of the world’s largest investment consultancies further down the road of fund manager, subject to approval by the FSA. With the rise of Fiduciary Management / Delegated Investment, questions have already been asked about the impartiality and independent advice of consultancies selling products and services more akin to traditional asset managers. This acquisition will no doubt raise more eyebrows amongst asset managers who rely on TW to promote their products. Oxford Investment Partners was founded in 2006 by two former employees of Deutsche AM to act as an investment office for Oxford University colleges using a diversified portfolio of assets. However, AUM has grown substantially in this time from £90m to £850m. Since its foundation, the business has always used Towers’ Watson’s6 manager research for which it pays a fee. The acquisition by Towers Watson will see the Oxip business absorbed and the growth of the pooled fund model.F&C chooses Richard Wilson as Chief Executive The asset manager has seen significant change over the year and Q4 has seen the appointment of the well respected Richard Wilson as CEO. Wilson joined F&C as Head of European Equities from Gartmore where he was Head of International Equity Investments and prior to Gartmore, he had spent 10 years with Deutsche AM. He has held a number of roles in fund management and distribution within F&C. The company announced in October that total AUM stood at £96.7bn which was 3.3% lower than in January. Perception of the business and the changes brought about by shareholder Edward Bramson seem positive and shares in the business have seen significant increases of around 50% from the previous lows of 2011.BlackRock hails ‘landmark merger’ for property fund December saw the announcement that BlackRock’s UK Property Fund and Deutsche Bank’s real estate asset manager subsidiary RREEF’s UK retail, office and industrial property fund will merge into BlackRock’s fund. IPE reports that this creates a £2.4bn property unit trust and adds £335m to BlackRock’s UK Property Fund, along with 64 new clients. The fund has around 400 institutional clients and has shown a 5.5% return over the past decade. Deutsche had been through a 100 day review of its long term strategy for asset management and announced that the asset and wealth management divisions will form a ‘fourth business pillar’ of the bank as a merged unit. The €900m combined fund will be lead by Michele Faissola.USS in the news In 2012, the 2nd largest UK pension fund, the Universities Superannuation Scheme, saw the value of its deficit triple in a year to £10bn as its heavy exposure to equities and alternatives witnessed large losses. The scheme blamed the deficit on the continued decline in interest rates which contributed to an increase of 24.2% in its liabilities to £43.7bn. During the same period, assets rose by only 4% to £33.9bn. However the fund continued its expansion in infrastructure investments by purchasing an Australian rail monopoly for €87m. This follows on from its other recent investment7 in Australian infrastructure; ConnectEast, a toll road operator. USS currently invests around £800m in infrastructure projects but is looking to increase that to £2bn. In other USS news, it was reported that Heath Mottram has joined the fund as Head of Fixed Income and Liability Management. The former Director of Fiduciary Management for Russell Investments and Head of Investment and Funding at the Royal Mail’s fund, joined in November. The fund also bolstered its infrastructure investment team by promoting Steve Deeley internally and appointing Rob Horsnall from UBS Global Asset Management, both as Investment Managers.JLT acquires Alexander Forbes Consultant & Actuaries The business has invested £17m cash in purchasing Alexander Forbes Consultant & Actuaries, the employee benefits business of Alexander Forbes Group to extend its offering within ‘health and wellness, risk, annuity and investment’. The business employs over 300 people across six UK offices and generated revenue of £27.8m in the year to March 2012. The acquisition will be absorbed into JLT’s Employee Benefits business which prior to the deal had over 1,300 employees across 15 UK offices and revenue of around £140m.State Street Global Advisors and UBS AM still in the news In the summer of 2012, State Street ended talks of a merger between its subsidiary SSgA, with the asset management business of Swiss banking group UBS. According to reports, the deal which would have created a $2.5tn+ super-asset manager fell down on price. The fourth quarter saw the SSgA report AUM growing by 11.3% yoy to $2.01tn against a backdrop of high profile staff departures in its London office; 12 well known names in the firm departed in Q3 and Q4. Meanwhile, UBS Wealth Management reported headline net inflows for Q3 of around £200m, excluding a withdrawal of around £670m from its separately managed wealth management division. UBS had previously announced sweeping staff cuts of around 16% of headcount; 10,000 jobs globally. The asset management business recorded improved profit. Continued turbulence into 2013 may possibly lead to further talks between the firms.Schroders moves on up8 In yet another quarter of positive news for Schroders that saw further talent acquisition, inflows and acquisitions, the share price also performed well, rising almost 10% in the final three months of the year. In December the firm announced the largest acquisition of the CEO’s 11 years at the helm, buying 100% ownership of the US fixed income asset manager; STW Fixed Income Management. With the addition of STW’s $11.9bn AUM, the landmark deal sees Schroders’ US fixed income AUM rise by around 50% to $35bn and brings around 100 new clients. The company also announced impressive Q3 net inflows of £2.6bn with over £1.9bn coming from institutional funds. Despite the positive news, some figures and statements dampened expectations; to the end of September 2012 annual net revenue was down 5% to £276.5m and Q3 pre-tax profit reduced from £101.6m in 2011 to £88.6m in Q3 12. Schroders warned that it expected the level of inflow into Q4 and 2013 would slow in the short term.Outflows continue at Henderson but AUM rises There were wide reports on the continued outflows from the Anglo-Australian asset manager. Q3 saw net outflow of £1.1bn including £1bn from its equity funds, and £296m from retail funds. Despite concerns over its focus on European markets, the firm reported a set of generally strong performance results including 70 per cent of its equity funds and 92 per cent of its fixed income funds outperforming the benchmarks. Thanks to the overall strong and positive fund performance, as well as currency movements, AUM increased by £1.2bn to £64.8bn. Although the reports focussed on the negative side of the announcements, Q4 saw the company’s share price rise by over 20% and around 30% across 2012.Aberdeen shows strong performance but outflows continued from Solutions A generally positive Q3 from Aberdeen Asset Management including a 20% rise in pre-tax profit to £269.7m from September 2011 and revenues up 11% to £869.2m over the same period. The firms’ continued investment in attracting emerging market interest helped it to attract a net £5.7bn into its emerging market equities funds and £2.2bn into Asia-Pac equities funds. Over the past three years, these two funds have grown from around 20% AUM to over 30%. However, many reports focussed on the negative news from the Solutions unit which reported net outflows of £3.2bn in the9 year ending September 30, including £841m from Q3. Shares rose from 212p in January to 367p at the end of December, a rise of around 73%, reflecting the underlying strong performance of the firm.Recent mandates and restructures Towers Watson was named as actuary for the £1.8bn Rexam Pension Plan, replacing the former incumbent Mercer. The fund has an equity allocation of 44.7% and just over half in fixed income and showed a 10.9% return at last report. JLT has taken over the management of Aegon’s £710m portfolio of DB schemes, continuing JLT’s growth after acquiring Alexander Forbes Consultants & Actuaries. Clwyd Pension Fund, the €1.3bn local authority scheme appointed Aberdeen Asset Management a £7m award for ‘frontier equity’ which can also consider debt and property investments. Aberdeen fought off stiff competition from around 12 managers for the award. In other news, Clwyd has also announced it is tendering in 2013 for a provider to manage the scheme’s de-risking. Aberdeen was also awarded a $200m emerging market corporate bond mandate by the Danish fund PKA and beat almost 30 other managers to retain the management of the Tyne & Wear scheme’s £360m property investments portfolio. On the back of being appointed fiduciary manager for the £800m Augusta Westland pension fund, their largest ever fiduciary win, P-Solve announced its appointment to the £41m pension fund for NACRO, the UK’s largest crime reduction charity with around 1,750 members. Cumbria County Council, the £1.5bn local authority pension fund with a funding level of around 82%, appointed Standard Life Investments a £130m fixed income, corporate bond mandate on a ‘buy and maintain basis’, seeking to protect against downside risk rather than returns. Warwickshire County Council’s £1.2bn scheme which invests on behalf of 77 employers across the county, awarded its active global credit mandate to JP Morgan Asset Management and will invest in JPMAM’s Strategic Bond Fund. State Street Global Advisors was appointed for five years as manager of £1.4bn of assets for Merseyside Council’s pension scheme, replacing the previous incumbent team of LGIM and UBS. The tender was overseen by Mercer and the award is made into SSgA’s Managed Pension Funds Limited fund, offering a suite of pooled funds across asset classes. The Merseyside mandate will be invested across passive UK equities (£400m), North American equities (£400m) and UK index-linked gilt funds (£600m).10 Premier Foods has selected Aviva Investors’ real estate multi manager team to oversee £100m real estate fund for its Rank Hovis McDougall subsidiary, which brings Aviva’s global AUM to around £5.5bn. The Aruban pension fund for civil servants in the Caribbean island of Aruba, the APFA, which has more than 6,000 members, has selected Russell Investments in the Netherlands as its Fiduciary Manager for its foreign portfolio, as well as its advisor on investment strategy and risk management. Santander UK has consolidated seven of its legacy DB pension funds into one master scheme, creating the 26th largest in the UK with around £7.2bn of assets. Jeremy Lee had earlier been appointed to advise on pension risk, joining from Redington. The Superannuation Arrangement of the University of London (SAUL) appointed Legal and General Investment Management as its LDI investment manager. LGT Capital Partners, the specialist alternative asset manager, has been awarded a fiduciary mandate from Hertfordshire’s local authority pension fund. The scheme has delegated responsibility for its alternatives portfolio with a value of around £300m and will see the £2.5bn fund significantly diversify its asset structure with an increased emphasis on alternatives.11 The Macro EnvironmentThe macro environment headlines at the beginning of the quarter were dominated by the uncertainty of China’s economic resilience in the face of increased global uncertainty and sovereign debt, the ongoing Eurozone crisis and the US presidential election. Later in the quarter, China steadied investor concerns by announcing generally steady growth figures, European governments found agreement to stabilise the situation in Greece and the markets nerves were calmed, and Obama was re- elected. Later in the quarter, the main global financial headlines centred around the $600bn fiscal cliff which went to the wire.Q4 Equities. Q4 showed contrasting fortunes between the US, European and Asian markets, with good and bad market data, debt agreements and bailouts, extreme weather and political uncertainty contributing to uncertainty. From an institutional investor’s view, the general Q4 trend was a movement from fixed income into equities and a more ‘risk on’ approach to asset allocation.. Global equity markets rallied in Q4 with the MSCI World Index up 3.1% as the Eurozone debt crisis and the fear of a prolonged period of low growth in the Chinese economy both resided. However, the US fiscal cliff became the major macro news story towards the end of the year (with some form of agreement being reached January 1st).. President Obama led attempts to avoid the “fiscal cliff” which would have resulted in an automatic $600bn of fiscal tightening during Q1 2013 if the Democrats and Republicans failed to find agreement on a blend of spending and tax levels. The deal agreed on January 1st saw some tax hikes, but no agreement on spending cuts demanded by the Republicans. Consumer confidence shrunk to five-month lows. However, the general economic data from the US remained positive which reflects sentiment in the housing and12 labour markets. Hurricane Sandy contributed to uncertainty and US markets and overall, US indices witnessed negative growth over the quarter. . European equities experienced equity gains over the quarter. Investors were more positive on the monetary and political measures taken to safeguard the single currency and the increased confidence of a long term solution for Greece. . As China continues to become a larger contributor to global trade and wealth, the mixed production data across H1 contributed to global equity markets’ uncertainty and volatility. The quarter witnessed more positive than negative news and data and the Asian region witnessed capital inflows and gains.. News reports in the UK towards the end of the quarter continued to highlight increased confidence of institutional investors ‘re-risking’ and moving capital back into equities from bonds and fixed income. The early days of Q1 13 have continued to witness capital inflows into UK markets and anecdotal evidence of fund managers increasing allocation to equity assets.Q4 ETFs . The most important news for the global ETF market came in the first few days of Q1 2013 as BlackRock, announced the acquisition of Credit Suisse’s ETF business. The acquisition will combine the $17.6bn that Credit Suisse managed in 58 ETFs, the fourth largest in Europe, with iShares' Emea range, the largest in Europe. This creates a combined $157.6bn in assets across 264 ETFs. Early Q4 also saw Russell Investments withdraw from the market as profitability falls due to increased competition. BlackRock’s acquisition leaves them as the dominant global player controlling around 75% of the market.13 . In macro ETF news, $265.3bn of new cash was invested into ETFs globally for the whole of 2012, representing an increase of 55.9 per cent on the $170.1bn in 2011. BlackRock recorded inflows of $87bn, up 62 per cent on 2011. SSgA, the second largest global ETF manager, rose 78.1 per cent to $38.3bn and Vanguard, the third largest global player attracted $54.2bn, a 50.8 per cent rise.. ETF Securities reported that at the end of Q4, commodity ETP assets increased by 17% to $199.8bn compared to $170.7bn at the end of 2011. Precious metal ETPs were the top performers with gold ETPs recording the largest asset increase in the year, rising $24bn to reach $146.6bn, followed by silver with assets rising $2.7bn to hit $17.7bn. Crude oil, copper and coffee all performed well. Increased global uncertainty was cited as the reason for the impressive inflows for the year. Q4 Bonds. Once concerns over the Eurozone crises had receded during the quarter, government bond yields in Portugal, Spain and Italy fell in line with improved investor sentiment. Germany also benefitted from the increased confidence in the stability of the single currency and its debt yield fell. The UK’s yields, which had previously benefitted from very low rates due to the perception of their ‘safe haven’ status, rose slightly as investors found value elsewhere. The indecision over the fiscal cliff in the US saw treasury yields rise slightly over the quarter.14 The LDI Landscape. It is estimated that around £300bn is currently managed in LDI strategies in the UK and it is generally assumed that around 85% of this market is controlled by the three largest firms; BlackRock, Insight and Legal and General Investment Management. However, as institutional funds look at innovative ways to increase value and decrease volatility of their funding status, progress to buyout or minimise contributions from the sponsoring firm, smaller players are finding traction in the market.. There is a generally reported increase in a willingness by funds to look at execution-only LDI services by smaller players. Rather than designing the full LDI strategy including when to hedge and what instruments to use, smaller players such as Schroders and F&C are concentrating on cheaper alternatives by managing a portfolio and its transactions, with the input of consultants to design overriding strategy.. The growth of fiduciary management in the UK and the increasing focus by consultancies and asset managers to drive this area of business has resulted in the increased competition for high profile, recognised LDI portfolio managers. The eroding of historical differences between consultancies and asset managers and fiduciary managers means that institutional funds have a wider range of choice when tendering. . The continued environment of record low gilt yields means many funds that have not yet done so, are reluctant to begin de-risking through an LDI strategy. Several reports and research pieces show the hesitation of pension funds to question the value of bond assets. There is a general shift towards finding alternative sources of LDI-like instruments to provide ‘safe’ returns with gilt-linked yields and the NAPF has begun looking at options such as a debt market linked to infrastructure projects.15 . Q4 was another quarter of small players raising their profile and adding their names to the list of UK LDI participants. Axa Investment Managers, with the Q2 hires of Shalin Bhagwan and Lucy Barron continue to seek to leverage their extensive European insurance and investment relationships, into London. Ignis Asset Management made two acquisitions; Jo Howley from BlackRock and Mark Julio from Baring Asset Management to help drive their LDI growth. BNP Paribas Investment Partners and Pimco all received coverage on their LDI offerings. LDI for defined contribution schemes also featured prominently and Dimensional and Axa joined Schroders and F&C to compete in this space. Unfortunately SSgA’s loss of key personnel was the main area of news coverage for the firm and the recent launch of LDI funds has by all accounts suffered as well.. November saw the release of F&C’s Q3 LDI survey which interviews investment banks on the volumes of hedging transactions taking place across their trading desks. The headline of the survey reports that inflation hedging fell 34% to £12.3bn from the previous record-beating Q2, while interest rate hedging also fell by 28% quarter-on-quarter to £9.4bn. The major reasons for the falls are cited as the Olympics in London causing a drag on volumes, the continued uncertainty in European markets, the UK government’s continuation of its bond repurchasing programme (another £50bn in the period) and significantly the uncertainty surrounding the re-calculation of the RPI. SEI Survey Results. SEI announced the results of its 6th annual ‘LDI Quick Poll’ of pension executives in UK, US, Canada and Netherlands on the subject of LDI. The results highlight the fact that from the first survey in 2007, LDI almost tripled in use by schemes from 20% to 63% of schemes in 2011. However, this figure dropped to 57% in 2012 with the suggestion that the global environment of low interest rates and funding levels at historic lows, funds are under pressure to make up deficits with16 return-seeking strategies. However, 20% of firms not currently implementing LDI strategies, plan to do so in the coming year. Of the 57% of schemes in the survey that currently implement an LDI strategy, more than half of them invest more than 40% of total assets into an LDI structure. Only 11% invest less than 20% of their entire portfolio in LDI. For the sixth consecutive year, respondents chose the main driver of an LDI strategy as a way to “control year-to-year volatility of funded status”, 76% selected this option.. The poll highlighted the continued disparity between respondents’ views on the definition of LDI. The most common response is “Matching duration of assets to duration of liabilities” with 39% agreeing this as the headline definition, however 31% believe LDI to be “a portfolio designed to be risk-managed with respect to liabilities”. Five other definitions covered the remaining 30% of respondents’ answers showing that LDI can mean bespoke approaches to similar problems for each scheme.. SEI highlights the near-doubling, from 15% in 2011 to 26% in 2012, of respondents’ primary LDI objective as "progress scheme towards termination or buy-out". In light of JLT’s report showing increased activity of buyout deals in Q3 and Q4 2012, this seems to be an emerging and growing trend.17 Fiduciary ManagementThe Fiduciary Management landscape from the fourth quarter can be best described using the commentary and statistics from two major surveys released during the period. The increasing volume of news and opinion from the industry-specific and generalist financial press, highlights the increasing engagement and uptake of fiduciary management. Although the number of providers has remained constant, the barriers to entry continue to grow.Earlier within this news review, the ‘Recent mandates’ section included very few fiduciary management awards. This highlights the disparity between providers when it comes to announcing their scheme appointments to the press. It is useful to read the comments from each party when a mandate is publicised, to understand the motivations of the pension fund for making their decision, however many asset management and consulting firms do not publish individual press releases for each award. Therefore the results of the surveys below paint a more accurate, wider picture of the market’s supply and demand, as well as the major movements.KPMG Survey Results. The annual Fiduciary Management survey by KPMG has found that the UK market for fully and partially delegated mandates is valued at around £53bn derived from around 300 schemes. Just under half of the total AUM; £23bn and over half the number of schemes; 174 are considered as fully delegated. During the 12 months to 30 June 2012, the full delegation market grew by around £6.5bn (40% from 2011) and by 29% in number of mandates.. A noticeable development from the 2011 survey is the size of surveyed firms which reduces from twelve to ten “most established fiduciary managers. Henderson and UBS have been removed as respondents from the survey, leaving Aon, BlackRock, Cardano, GSAM, Mercer, MN, P-Solve, Russell, SEI and18 Towers. It will be interesting to see whether this number increases, or perhaps more likely decreases in the 2012 survey.. A general shift in the survey, reflecting the increasingly common view of market participants, is the trend for defining fiduciary management as a fully delegated service over all of the funds’ asset classes and investment decisions. It is more common now to read about appointments of fiduciary management mandates covering only specific asset classes or geographies, or where trustees retain full or partial investment management or execution decisions. However, these are not considered as full delegation by the survey or to our experience, the general market perception.. There are only three fully delegated fiduciary mandates worth over £1bn in the UK and one of the most widely reported results from the survey is that 66% of all fully delegated mandates are for funds below £100m and 22% are for between £100m and £250m. This means a total of 88% of fully delegated fiduciary mandates in the UK are for schemes under £250m. At this smaller end of the market, around 80% of mandates being managed by consultants rather than asset managers or specialists.. The report breaks the market providers into three categories; Implemented Consultancies which are traditional consultants who have developed their models from pure advisory into asset management and advisory; Specialist Providers and Investment Managers. The report makes clear that the winners of the uptake of fiduciary models by pension funds are the implemented consultancies who own around 80% of all fully delegated mandates’ AUM and 90% of partially delegated appointments.. In summary, the report demonstrates the rapid and increasing growth of the fiduciary management model for UK pension funds and the ongoing dominance of the consultants in leveraging their advisory relationships. I&PE Europe Survey Results19 . The magazine Investments & Pensions Europe, released the results of its annual industry survey showing that twenty main Fiduciary Management players in Europe have attracted a €110bn increase in AUM in the year to June 30 2012. By some distance, the largest fiduciary manager in Europe is APG, the Dutch Asset Manager, showing total fiduciary AUM of €300bn and an increase of 28% year on year increase. It must be taken into account that €261bn of this total is from the civil service pension fund; ABP. . The top 5 managers are all relatively unknown in the UK, with the exception of MN which has operations in London. They are in 5th in the table with €85bn. BlackRock top the list of familiar names at number 6 with €42bn AUM, Towers Watson in 7th with €32bn, Mercer in 19th with €11.5bn and Cardano who have exposure to the huge Dutch market but a large presence also in the UK, in 20 th position with just under €11bn AUM.Reproduced from Investments & Pensions Europe magazine . The survey highlights the increasing appetite for Fiduciary Management or Delegated Investment relationships by pension funds across Europe. In total, for providers surveyed in 2011 and 2012, AUM had grown by an average of nearly20 12%. Mercer is reported to have delivered a near 100% increase in AUM in the twelve month period in Europe and recorded the largest increase in the number of new clients; 47, 27 of which in the UK, demonstrating the increased traction of their offering here. Globally, Mercer is understood to manage approximately €50bn under fiduciary. . Towers Watson, with a reputation of concentrating its business towards larger mandates, added eight new mandates with a combined value of €7bn which was the second largest net inflow of the survey. Globally, the firm is understood to be closer to €42bn of fiduciary AUM. Russell Investments did not feature in the table as it only has €9.2bn fiduciary mandates in Europe, although globally it has AUM of €72bn, ranking it much higher than its rivals.. To put the survey of the 20 largest providers into perspective, the results showed AUM in the Netherlands to be approximately €662bn, more than fifteen times larger than the UK’s comparative €40bn, the third largest in Europe behind Germany’s €192bn. However, KPMG’s 2012 survey shows a total fiduciary AUM of £50bn/€62.5bn, indicating a wider spread of providers in the UK. It is clear that whereas the Netherlands is dominated by super-size fiduciary pools acting on behalf of the large pooled pension funds, the UK is more fragmented with more providers competing for both large and small mandates.. Finally, despite not being included in the I&PE survey, it is worth noting that the major UK player Aon, announced record additions to its fiduciary management business, up around two thirds globally from $18bn to $30bn (c.€23bn) total AUM. During the year to September 2012, the UK grew by 35% to $6bn and the US business added 75% to grow to $19bn. The remaining growth came from their Canadian and Australian markets.21 People WatchSome of the information compiled below has been announced in Q3 but was not included in Fairway’s Q3 Review. BlackRock were busy during the period and the little-publicised restructure of the BMACS unit resulted in the departure of the highly respected Al Denholm. Denholm had arrived in Q4 2011 as MD Head of BMACS, joining from ING where he was Head of Equities, Deputy Chief Investment Officer. An internal appointment of note was that of iShares’ Russ Koesterich as chief investment strategist across the group. This new role, reporting to Ken Kroner, the new Global Head of Multi Asset Strategies, he will be responsible for strategy and conveying BlackRock’s perspective on the markets to investors as well as financial advisers. In other moves, the company appointed Fons Lute as Managing Director for Netherlands Fiduciary business, reporting to Richard Urwin. He was previously Director of Business Development with Cyrte Investments. In Q3, BlackRock announced that Arno Kitts was joining as Head of UK Institutional from Henderson Global Investors where he spent nine years and was most recently co-Head of Global Distribution. In the same release, Andy Tunningley was announced as having been recruited from Aon where he was Global Practice Leader, to join as Head of the UK Strategic Team which is responsible for the company’s largest institutional clients. Patrick Liedtke joined in October from the Geneva Association which he built over 12 years, to Head of Financial Institutions Group. James Wilkinson joins the business in Q1 13 s as European Chief Investment Officer for the firm’s recently launched global real estate securities platform from Thames River Capital. . Ignis Asset Management recruited two high profile individuals to push into the crowded LDI market. Jo Howley was formerly at BlackRock and previously BGI from 1997, recently as a Portfolio Manager and then in a more marketing-22 focussed Product Specialist role. Joining into Ignis’ Emerging Markets Funds is Mark Julio from Baring Asset Management where he was a Fund Manager. Simon Cowan was appointed as Fund Sales Director from Old Mutual Asset Managers where he was Regional Sales Manager. . Russell Investments announced two additional hires into its fixed income team headed by Jeff Hussey; Adam Smears and Kevin Dockrell. Smears was previously leading Skandia / Old Mutual Global Investors’ fixed income research and is appointed as Head of Fixed Income Research. Dockrell arrives from Towers Watson as a Research Analyst.. LGIM has announced that Simon Thompson will succeed Kevin Gregory as the firm’s COO, combining his current role of Head of Product Strategy and Development into a new dual role. Gregory departed LGIM earlier in the year. Thompson will report into chief Executive Mark Zinkula. Another senior appointment was Teresa Poy as Chief Compliance Officer, reporting to head of legal and regulatory affairs Paul Sweeney. She joins from TT International, the ‘high alpha specialist’ where she was Head of Compliance for Europe and North America. In related news, the former Chief Executive of Legal and General, Tim Breedon was appointed to the Barclays board. Lance Phillips joined from Standard Life where he was Head of Overseas and Global Equities, to become Head of Active Equities at LGIM. . Aon Hewitt reported that its Global Head of Asset Allocation, Colin Robertson left the business in September. In June Ian Peart who was Head of Research left the company and it is yet to be reported where he has moved to. From the company’s Dutch office came the news that Reinoud van den Broek, Chief Executive at Aon Hewitt Netherlands and Jan Willem Siekman, Executive Director for Retirement and Financial Management at Aon Hewitt, will leave the business. An internal move saw Tapan Datta, Principal Global Asset Allocation, assume responsibilities at the head of the asset allocation team of ten. The firm recruited Joe Murphy to the investment consulting group of its Global Asset Allocation Team. He was previously a multi asset strategist with the BT Pension23 Scheme. Andrew Woolnough has been appointed Client development Director within the Flexible Benefits team. He was previously at Enrich Reward, where he was Head of Flexible Benefits.. Towers Watson lost a well known and respected industry figure when Keith Jecks, the Senior Consultant, announced he will leave the firm in Q4. He will now look at building a portfolio of non exec roles. The firm announced in November the appointment of Lisa Stay who joins the International Consulting Group based in London. She specialises in benefits financing and previously spent almost 10 years with Maxis Global Benefits Network, most recently as a Multinational Account Manager. Alistair Byrne joined the company’s growing UK DC investment business as Senior Investment Consultant. He joins from Investit, where he was a Principal, responsible for advising asset management firms on product development.. In a top level reorganisation, Mercer has named Simon O'Regan, who joined the firm in 1988, as regional president for the European and Pacific regions. The company has also made a high profile acquisition with the appointment of Jeroen Wilbrink, the fiduciary management and LDI specialist as the Head of ALM Benelux, managing a team of 9 and reporting to Jelle Beenen. He had previously spent 10 months at US firm Secor and replaces Paul Duijsens who departed in Q2 to join ABP, the €300bn Dutch pension fund. . After the loss of Jeremy Lee to the newly merged Santander pension fund, Redington expanded its manager research team as well as its consulting division with the news that it had acquired three more staff taking the years hire total to nine. John Towner joined as a Managing Director in the Investment Consulting team from Barclays. Patrick O’Sullivan joined as a Consultant from Prisma Capital and Aniket Das became an Actuary in the Manager Research team, from Standard & Poors.. Investec Asset Management has appointed Stephen Lee as Sales Director within the UK Client Group, responsible for direct corporate and local authority24 pension fund relationships. He was previously Head of UK Institutional Business Development at UBS Global Asset Management. They have also hired Charles Whall, Director of Investment in Oil & Gas from Newton Asset Management; he becomes Global Energy Fund Manager. Tom Nelson re-joins from Guiness Asset Management onto the same fund.. Threadneedle were conspicuous in the news and appointed Campbell Fleming as its new Chief Executive after Crispin Henderson becomes vice chairman of global asset management for Threadneedle’s parent company; Ameriprise Financial. Fleming joined Threadneedle as head of distribution in 2009 from JPMorgan Asset Management. The firm also made several acquisitions into its 48 person Global Fixed Income team, including John Peta to run the Emerging Market debt team, joining in October from Acadian Asset Management where he was Head of Emerging Market debt. Ryan Staszewski joined from JP Morgan as a Corporate Credit Analyst within the Investment Grade team, specialising in utilities and securitisation. James Waters, formerly of Goldman Sachs Asset Management, joined as Fixed Income investment specialist. Earlier in the year, Tammie Chan joined from Pembroke as a Portfolio Manager running investment Insurance funds and Zara Kazaryan as a Portfolio Manager in Emerging Market Debt from G2 Capital Partner. More recently, the company also announced the acquisition of Peter Yarrow as Client Relationship Director to focus on the firm’s large insurance clients, reporting to Andrew Nicoll, as well as Moira Gorman from SSgA as a Client Relationship and Sales Director in June. All of the above join the London office.. JLT Investment Consulting added to its London consulting team by bringing in Vathani Waran as Investment Consultant from BlackRock, and previously BGI, where she worked for 3.5 years as a Client Account Manager.. As one of the most high profile firms for people moves, SSgA have been busy in the period. After the well publicized losses of Maureen Fitzgerald, Head of US Institutional Client Group, Ben Clissold, Senior LDI, Moira Gorman VP Senior Relationship Manager, Vin Battacharjee, European head of Intermediary25 Business, Kieran Moody, MD of UK pooled funds, Nick Pearce, Head of Finance; Richard Owen, Head of UK Business Development; Scott MacMillan, Head of Relationship Management; and senior relationship managers Andrew Hitchen and Julie Caffrey. Further, Shawn Johnson, Senior MD and Investment Committee Chairman stepped down at the end of Q3. However, those arriving at SSgA included Nigel Aston as MD and Head of UK DC, formerly Business Development Director at DCisions. This is a newly created role and Nigel will be in charge of selling SSgA’s investment services to the growing market for DC schemes, reporting to Susan Raynes. Catherine McLaughlin joined in September from Aon Hewitt where she was an Investment Consultant, however prior to this she had Fixed Income Fund Manager for Irish Life. Catherine has been appointed as a Senior Relationship Manager. Howard Kearns joined as Senior Strategist to boost its investment solutions group, which specialises in liability-driven investment strategies and has experience most recently with Nomura and previously Credit Suisse and Goldman Sachs, creating solutions for the pensions and insurance markets. He has recently focused on longevity hedging and the pension buy-in market. As part of the internal reshuffle, Greg Ehret, formerly Head of EMEA Sales & Distribution from 2007 and then a wider mandate as Head of Europe from 2008, has been appointed to a newly created role of Global Chief Operating Officer. Ehret will be succeeded by Mike Karpik who was previously Senior MD and Head of Investments in London and has been with SSgA for 14 years and Shawn Johnson will be replaced as Investment Committee Chairman by Chief Risk Officer; Jacques Longerstaey. In another internal move, Max Scharl has been appointed portfolio manager for LDI Structuring, joining from SSgA's Risk Analysis division. Simone Vroegop was appointed to the newly created position of Head of Consultant Relations for the EMEA region, based in London. Her previous role was focused on the Dutch and Nordic region as VP and Director of Investor Services. . Pimco has appointed Will Allport from the successful defined contribution- investment firm; Alliance Bernstein, as their Vice President for Defined Contribution strategy. 26 . Pioneer Investment has hired Nicholas Pothier from HSBC Global Asset Management as Senior Portfolio Manager within the Multi Asset team, to focus on multi-asset and thematic fund of funds management, investment manager and fund selection. Also joining Pioneer is Jonathan May from Aviva Investors, his role will be Head of UK Institutional Business Development.. T Rowe Price has brought in Robert Higginbotham as Head of Global Institutional Services. He joined from Fidelity Worldwide Investment where he had experience across several senior leadership roles, most recently as CEO of EMEA and Latin America. Mark Atkinson has been named as Head of Marketing for EMEA from a similar role at Alliance Bernstein.. BlueBay Asset Management, the fixed income and alternatives specialist has hired Eric Gerth as Global Head of Business Development. Gerth was previously with Aviva Investors in the role of Asia Pacific and Global Business Development.. Henderson Global Investors named James de Bunsen as its new Fund Manager within its multi asset team. He previously spent two and a half years as Partner and Portfolio Manager at Armstrong Investment Managers which specialises in managing inflation-benchmarked investment solutions with controlled volatility.. Aberdeen Asset Management appointed Ken Tooze as Senior Institutional Business Development Manager from Nomura Asset Management, where he focused on the UK institutional market. Stuart Ives has joined from JO Hambro as a Senior Consultant Relations Manager.Pension Funds. In pension fund news from the fourth quarter, Tony Pike, the Head of Investments at BP’s £15bn fund has retired after 14 years, five of which were in this role. He led the 30 person team to deliver an average annual return of 3.8%,27 despite difficulties for the business and the financial climate. John Bearman, who joined from Santander Asset Management where he was CIO, will take over the role. It was also widely reported that Joyce Martindale would be leaving RPMI Railpen after ten years service. She was the Head of Investment and Change Management. It was announced in December, she will chair the NAPF’s new DB forum panel. The Universities Superannuation Scheme, USS, appointed Heath Mottram as Head of Fixed Income and Liability Management in November. He was previously Director of Fiduciary Management for Russell Investments. The fund also bolstered its infrastructure investment team by promoting Steve Deeley internally and appointing Rob Horsnall from UBS Global Asset Management, both as Investment Managers.28

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