Trends in Asset Management
From the growth in alternative investments — an almost threefold increase from 2000 to 2010 — to the continued emphasis on defined contribution plans, now more than 40% of all pension assets, institutional asset management is undergoing dramatic changes. The confluence of these and other trends is placing greater demands on the investment professionals overseeing institutional portfolios, requiring a deeper understanding of not only the components of investment performance, but also the inherent risks involved. As a result, those institutions that do not possess the necessary internal expertise increasingly are turning to third-party providers for total investment program management.
Decreases in Stocks & Bonds Fuel Move to Alternatives
Alternative investments offer institutional investors the potential for enhanced performance as well as a possible hedge against certain risk exposures, such as inflation. The growth in alternative strategies has resulted in decreased allocations to fixed income and, to a lesser extent, equities.
The Growing Role of DC Plans
Although defined benefit plans still represent the majority of retirement assets, defined contribution plan assets are growing at a faster rate. According to Towers Watson, DC assets have grown 7.5% annually during the past decade, compared with 2.9% annually for DB assets.
More Sophisticated Performance Analysis
A recent McKinsey report cited a J.P. Morgan survey of 120 defined benefit plan sponsors that revealed a desire to better understand investment performance.
Rise in Demand for Third-Party Solutions
The use of outside providers of investment program management solutions is expected to roughly double by 2014.