Index trackers now make up around 25% of all UK pension fund equity assets, according to William M M...
Index trackers now make up around 25% of all UK pension fund equity assets, according to William M Mercer European Pension Fund Manager's Guide 2000.
This is as much a reflection of a more selective approach from the pensions industry to gaining equity exposure as it is a reaction to the underperformance of many active managers.
Julia Hobart, head of manager advisory services at William M Mercer, said the rise reflected a growing distinction between exposure and added value with the industry becoming less tolerant of underperforming asset managers.
Hobart said: "In the past, pension funds just put up with their asset managers and their results, but the industry is becoming wiser, and if a manager can reliably add value it is willing to pay for it. However, if a manager overperforms a bit one year, and underperforms the next, the industry sees that it might as well pay for an indexer."
However, even though Hobart expects this trend to continue, she does not consider it a process with much further scope. She said: "My guess is that the level of indexation will begin to stabilise. There is a strong correlation between strong underperformance of active managers and indexation but a lot of the people who would transfer funds from active management to index-tracking have moved, so I would not expect the growth of indexation to continue as a straight line."
Also included in the report was the rise in the value of assets under management in the UK pensions industry. This rose from $1241bn on 30 June 1998, to $1444.5bn on 30 June 1999, representing a gain of 101%, up from 86% in 1998. The UK figures compares to $607bn in assets in the Dutch market, $306.2bn in Switzerland, $286 in Germany, and $95bn in France.
According to the guide there has been little change in the overall asset allocation split in the management of UK pension fund assets. The proportion of assets held in UK equities remained at 55% between 30 June 1998 and 30 June 1999. As a proportion of total assets held that remained by far the highest in Europe with Ireland and Sweden the next most heavily weighted in domestic equities at 25% and 24% respectively. Domestic bonds held steady at 9% during the same period, and real estate remained at 3%. Assets held in foreign equities rose from 17% to 18%, and foreign bonds rose from 6% to 8%. Cash reserves and other investments fell from 10% to 8%.
Barclays Global Investors moved to the top of the European Pension Fund Asset Management tree, with $106.98bn assets under management on 30 June 1999. Schroder Investment Management held onto second place with assets under management of $100.82bn. Merrill Lynch Mercury Asset Management, which had been top of the table in June 1998, was in third place with $100.39bn.
The guide also noted the increasing globalisation of the fund management industry, and reported that between 30 June 1998 and 30 June 1999 there were 54 mergers and acquisitions in Europe, 26 involving UK firms, up from a total of 39 in the previous 12 months. Mercers found that the main drivers of globalisation have been market reform, the unifying of industry standards, and the increasing acceptability of non-domestic players in domestic markets.
The guide can be ordered on 0208 686 2466, and costs £700 for volume one, or £1,200 for both volumes.