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bfinance Pension Fund Asset Allocation Survey: cautiously optimistic investors set to embrace smarter thinking and more risk in 2013

Monday, November 19, 2012

Emmanuel Lechere
Opalesque Industry Update - Clear long term trends of further diversification across asset classes; increase in allocation to emerging market assets, infrastructure, alternatives and smart indices identified by leading institutional investors

bfinance, an independently owned consultancy firm providing specialist, customised and transparent financial services advice to institutional investors and companies globally, today announces the results from its 8th annual Pension Fund Asset Allocation Survey conducted amongst institutional investors in Europe, North America and the Middle East representing $350 billion.

Key findings include:

• Cautiously optimistic investors not so concerned by risk of deflation or slowing of emerging market economies in the year ahead. Investors see asset price volatility, inflation and the ongoing sovereign debt crisis as the key sources of risk for their funds.

• In the first half of next year, investors plan to retain developed market equities with the US and Europe favoured, especially as many of these equities are seen to be under-valued.

• Over three years, investors plan to reduce exposure to developed market equities and sovereign bonds to the benefit of emerging market equities, credit, real assets and alternatives.

• Strong trend towards smart beta solutions such as low volatility/minimum variance and risk weighted/risk efficient strategies continues to be evident in institutional portfolios with 43% of investors considering moving traditional passive investments to smart indices and alternative solutions in the year ahead.

Alternatives including infrastructure and private equity, as well as absolute return strategies such as dynamic asset allocation and diversified growth, will be key beneficiaries in the first half of 2013 and over the next three years.

• Despite the positive trend towards alternatives, fund of hedge fund strategies remain out of favour with many investors, with a net 7% of investors decreasing allocation to this asset class over the next three years.

In equity and bond markets, bfinance found a clear short and longer-term intention to move to emerging market equities and debt largely at the expense of sovereign bond markets in the first half of 2013 and developed market equities, in addition to sovereign bonds, in the next three years. A net 17% (in 6 months) and 24% (in three years) of investors plan, over these periods, to add to emerging market equities whilst the comparable figures, a net 17% and 35% of investors, plan to add to emerging market debt showing an even stronger positive long term trend. Strong demand for credit in developed markets is also evident.

Emmanuel Léchère, Head of the Market Intelligence Group at bfinance said:

“Beyond diversification, the challenge for many investors is how to best understand and reintroduce risk in a calibrated fashion that recognises different types of risk tailored to different investor profiles, from the least risky to the most risky: investment grade credit, high yield, emerging market debt and finally, equities and alternatives.”

Olivier Cassin, Managing Director at bfinance in London said:

“Embracing this challenge of incorporating additional risk requires, more than ever, greater disclosure, transparency and clarity. Investors, investment managers, institutions and their advisors are driving an ongoing cultural change by demanding greater transparency around hard to value assets and asset classes in order to construct the most suitable portfolios for delivering required investment objectives.”

(press release)

For more information please refer to

bfinance is an independent, privately owned consulting firm providing specialist, customised and transparent financial services advise to institutional investors and companies globally. Focusing on a range of solutions from investment manager search, selection and portfolio implementation to banking relationship services including optimising corporate finance and cash management processes, bfinance has advised over 400 of the world’s most sophisticated institutional investors and corporations in over 25 countries from our offices across Europe, North America and the Middle East.

Established in 1999, bfinance has offices in London, Paris, Munich, Amsterdam, Milan, Dubai, Montreal and New York. bfinance UK Limited is authorised and regulated by the Financial Services Authority.

The survey was undertaken in October 2012. A representative sample of 54 major asset owners representing $350 billion participated; 76% of them based in Europe, 24% in North America and 2% in the Middle East. Within the European respondents, 30% of participants are based in the UK, 11% in Belgium and the Netherlands and 13% in Nordic countries. Overall, 45% of all participants are corporate pension funds, followed by public pension funds (30%), insurers (6%), and foundations and endowments (4%). Plans with more than US$1 billion assets under management (AUM) account for 75% of all participants.


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