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Institutional investors “stick with experienced managers during turmoil”

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Experienced managers of asset allocation funds earned the loyalty of institutional investors in 2008, according to Glenn Meyer, lead analyst at Standard & Poor’s Fund Services.

Experienced managers of asset allocation funds earned the loyalty of institutional investors in 2008, according to Glenn Meyer, lead analyst at Standard & Poor’s Fund Services.

‘Risk measurement is backward looking,’ says Meyer. ‘When markets change, using backward-looking risk measurement means that risk management tools do not work. Style didn’t work and nor did geographical diversification particularly. The only asset classes that did relatively well were cash and government bonds.’

However, he saus that with cash the return fell very sharply towards the year-end, as interest rates plummeted.

Even among the best performing funds, overall returns were negative and none of the fund managers interviewed by Standard & Poor’s was satisfied by performance in 2008, says Meyer.

However, there were some who produced good returns relative to the peer group. These were all highly experienced managers who had worked through previous market downturns and took effective action to protect capital as much as possible.

At Jupiter, for example, the funds-of-funds team deliberately sought underlying funds with experienced managers and a record of good relative performance in poor markets.

Meanwhile at BlackRock, US-based Dennis Stattman, investing primarily for those with US dollar liabilities, was able to draw on the collective long experience of his very well resourced team. The team raised cash to comparatively high levels early in the year, which made it well placed to fund redemptions in the second half.

‘There are signs that institutional investors in particular chose to stay with the experienced asset allocation managers,’ says Meyer. ‘We know retail investors were more active in taking money out – typically they go in towards the top of the cycle and exit close to the bottom.’

Looking ahead, Meyer says it is up to investors in asset allocation funds to ensure they have enough information on funds they are considering investing in and adequately understand the complexities of multi-asset funds before making investment decisions.

‘We will continue to consider in detail the risk management capabilities of individual fund managers and investment groups,’ he adds. ‘This is particularly important as recent experience has shown that accurate measurement of historic risk parameters does not necessarily equate to effective absolute risk avoidance in a portfolio.’

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