EUROPE: CREATE-Research finds that Asset Managers should start selling products which are “fit for purpose”

Monday November 24 2008

A new study which surveyed 87 pension funds and 135 asset managers across Europe has found that Pension Funds are unimpressed with asset managers in areas including return on investment, strategic or tactical asset allocation, and access to new asset classes.

Professor Amin Rajan the Chief Executive of CREATE-Research and author of the report said that pension funds could no longer count on their consultants and asset managers to help them navigate through uncharted waters without purposive action and has called on pension funds to reconsider their asset allocation manager selection as well as to create a clear investment philosophy .

The report has also called on asset managers to stop selling what they were currently and focus on selling what their clients needed – by creating more appropriate products. This is in account of the fact that alternative assets such as private equity and hedge funds have failed to provide the expected benefits to pension funds.

The strain on the industry is partly attributed to high fee structures of the asset management industry with an average hike of 40% percent and no corresponding improvement in the performance of the fund- the report says.

Professor Amin notes that pension funds need to enhance their own governance structures and investment skills to create a clear investment philosophy based on sound instincts instead of the “herd mentality” that was “responsible for poor asset allocation calls”.

“The risk-return features of most asset classes have become hugely volatile, the correlation between old and new asset classes has gone through the roof, strategic asset allocation looks like a casino game and new products verge on financial alchemy,” says Professor Amin. As a result, the industry has gone from managing risk to managing uncertainty, or from managing the probabilities of expected returns on different assets to something based on “pure guesswork”.

The full report is available from the CREATE-Research Website.