Equity market growth sees schemes rerisking

Equity market gains and reduced volatility helped those investors that had stuck with growth assets, but some are now looking to reduce risk.

In its roundup of institutional flows for the last quarter of 2013 Financial Times service MandateWire revealed the highest inflows into equities since the beginning of last year.

The data show UK institutions had awarded mandates worth about £2bn to equity managers, compared with £955.8m in Q3 (see graph).

Global equities attracted the most attention with 21 mandates awarded, totalling approximately £1.6bn, compared with £610m in Q3.

Alternatives

Olivier Lebleu, head of non-US distribution at Old Mutual Asset Managers, said he has seen schemes reallocate to global equities from alternative assets.

“In some cases, the various lock-ups embedded in alternatives products – whether it be a private equity fund or hedge fund strategies – have not proven to be popular with institutions even if they have the time horizon to tolerate a lock-up,” he said.

As these terms came to an end a preference for liquidity was notable, Lebleu added.

The rise in demand for equities can also be attributed to buoyant markets throughout 2013.

“The signals from central banks of the developed world were that you should buy more equities and some institutions followed that lead aggressively,” said Lebleu.

MandateWire data show emerging market allocations proved popular with investors, with £318.2m invested with EM managers.

Tim Giles, partner at consultancy Aon Hewitt, said: “[The move towards global equities] has been happening for some time. There has been a trend away from UK equities towards global equities and emerging markets.”

However, the equity trend is expected to slow down in 2014. Lebleu said the correction in emerging markets which took place last year which is showing signs of continuing could dampen emerging market equities in 2014.

Giles said: “We’ve seen most equities have a fairly good run, with the exception of emerging markets. Equity prices have risen well. Price-earnings ratios are as high as they have been for some time. Equities are having a good run and now it’s a good time to diversify into alternative assets.”

Many schemes were looking to multi-asset strategies to add flexibility and dynamism. The data show inflows of £365.8m and £408.2m in Q4 and Q3 2013.

Ciaran Mulligan, global head of manager research at Buck Global Investment Advisors, said: “People are still mindful of risk in beta-driven asset classes, so they’re probably trying to protect the fund through diversification.”

However, he warned there may be a slow-down of investments. Mulligan said: “Some of the multi-asset funds haven’t kept pace with the equity market, which may lead some schemes to take another look at their use of this strategy.”