Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013
Luba Nikulina, Willis Towers Watson

23623

Demand for greater sophistication drives return-seeking and diversifying strategies, says Willis Towers Watson

RELATED TOPICS​

Willis Towers Watson’s institutional clients – which include pension funds, sovereign wealth funds, endowments, foundations and insurance companies – increased their levels of investment by almost 20 per cent in 2016, with USD71.7 billion invested across different asset classes, and covering allocations made on both an advisory and delegated basis.

Luba Nikulina (pictured), global head of manager research at Willis Towers Watson, says: “What worked for investors in the past is unlikely to work in the future so our clients are looking for new innovative ways to achieve better risk-adjusted returns. Finding ways to work their assets harder is at the top of our clients’ agendas, be it through reducing costs, adding diversity or creating bespoke solutions in a much more thoughtful way than in the past.”
 
Equities remained the most popular asset class with Willis Towers Watson clients in 2016, with around 270 selections across the year, representing a total value of USD26.8 billion, 25 per cent more than in 2015. Private equity experienced a resurgence with 75 per cent more selections in 2016 across Willis Towers Watson clients but there was also a general increase across other equity strategies, such as active global equities, emerging markets and equity smart beta. 
 
“With the increasing realisation that the current low return environment is likely to make journey plans significantly longer than initially anticipated, clients are spending more time re-visiting their equity allocations,” says Nikulina. “The attractiveness of adding skill and illiquidity return drivers has increased but they require more effort from investors. The reality is that most active managers do not add value after fees so the way to achieve success is accessing skill through concentrated best-in-class portfolios, relentless cost management and using smart beta where appropriate to complement equity exposure.”
 
Diversifying strategies continued to prove popular, with clients investing USD23.6 billion in 2016. The number of selections in infrastructure and real estate increased by nearly 50 per cent for the 12-month period ending 31 December 2016. Liquid multi-asset strategies also saw more than 70 per cent growth during this period.
 
Nikulina says: “Diversifying strategies continue to be important, offering investors a more sophisticated gateway to downside protection. In addition, we have also seen demand for bespoke solutions continue to grow, as more institutional investors recognise the benefits that highly tailored approaches can bring in better meeting their individual needs, especially in those strategies which are more complex, expensive and driven by skill. The difficulty that investors have in seeking out and accessing such managers is a significant factor driving the growth in delegated solutions.”
 
New allocations to credit strategies remained static in number with 207 selections and slightly lower in volume totalling USD14 billion amongst Willis Towers Watson clients in 2016. Smart beta solutions in credit have regained popularity from only a handful in 2014 and 2015, to 19 different selections in 2016.
 
“Activity was meaningfully lower in some parts of the credit market, such as developed markets government and investment grade corporate bonds, reflecting the valuation picture in the current state of significant monetary expansion. However, the credit universe is very wide and there is scope to retain exposure to the credit risk premium through alternative forms of credit, whilst at the same time introducing more illiquidity and skill in these less efficient areas. Smart beta solutions in credit is another way to implement something relatively new and interesting in the well-trodden credit space,” says Nikulina.

Latest News

According to the latest ESG data from PwC Luxembourg finds that investment flows towards EU..
Solactive and private equity data provider CEPRES have established a new partnership for to introduce..
New research published today by the CFA Institute Research and Policy Centre analyses the many..

Related Articles

Pension funds
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next decade, industry research reveals...
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next..
Tim Crawmer, Payden & Rygel
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also, given that equities had a strong year last year, big funds have taken some chips off the table in equities and put them into fixed income...
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also,..
Lady justice
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI) strategies received glowing commendations from the Bank of England in its March report...
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI)..
Pension funds
Four potential operators of pensions dashboards (Just Group, Legal & General, Moneyhub and Standard Life, part of Phoenix Group) are coming together to instigate a new industry coalition...
Four potential operators of pensions dashboards (Just Group, Legal & General, Moneyhub and Standard Life, part of Phoenix Group) are..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by