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UK
London, 12 May 2008

New Mercer report on global investment manager search trends

• Recent market turmoil further accelerates search activity in non-traditional asset classes
• Value of assets placed through Mercer’s manager search activity totalled US$76.3 billion in 2007, with average placement US$100 million
• Global equity and real estate are most searched product categories globally in 2007

Search activity in non-traditional asset classes continues to rise globally as investors seek to diversify their portfolios in the face of unstable markets, according to data released by Mercer today. The 2007 Manager Search Trends report gives insight into institutional investment mandate hiring patterns and trends across the world, and is based on activity reported through Mercer's global client database.

During 2007, Mercer advised on 762 manager searches across the world, representing US$76.3 billion in assets placed. Globally, searches ran at similar levels to previous years, although some regions and individual countries saw significant changes. New Zealand experienced the sharpest rise in number of searches with Mercer handling 50 last year, as opposed to 13 in 2006.

Searches in alternatives are up by approximately 20 percent across the world. Real estate in particular experienced increased popularity with 62 searches performed, up 12 from last year, although the amount placed remained virtually unchanged at US$1.8 billion.

Global equity continues to be the most popular product category amongst Mercer's clients, with 158 searches accounting for over US$19.5 billion in assets placed, though this was down from US$29 billion in 2006. This asset class now only accounts for 26 percent of total assets placed compared to 31 percent the previous year.

Both the UK and the US also experienced a decline in domestic equity search activity.
Andy Barber, global and European head of research at Mercer, commented: "The key trends of earlier years are clearly continuing, including a steady increase in search activity in non-traditional asset classes.

“Recent market turmoil is, however, expected to further accelerate search activity as investors seek not only to further diversify but also, on an opportunistic basis, to identify investments with the potential for higher returns."

Europe

In 2007, 242 searches were conducted in the UK, with total assets placed declining to US$29.2 billion from US$36.9 billion in 2006. Last year’s predicted growth in alternative categories has materialised in the UK with a significant increase in activity.

In the rest of Europe, overall search activity increased by 20 percent. However, the country-by-country distribution changed dramatically: Germany, Switzerland and Spain all experienced an increase in number of searches, whereas in Ireland, the Netherlands and France the number declined.

Global fixed income re-emerged as a significant search category across Europe, excluding the UK, with 13 searches conducted and US$4.9 billion in assets placed. Multi-asset/balanced and European equity saw the most search activity in this region. 

Mr Barber commented: “European countries continue to display a diverse range of activity. Germany, Switzerland and the UK appear to be leading the way in terms of non-traditional search activity.”

Asia

Search activity declined by nearly 50 percent in 2007 after practically doubling in the previous year. The most common search activity was global / international equities. Across the region there has been growing interest in higher-returning areas such as private equity and infrastructure, but placements in alternatives have tended to be small, reflecting more “toe-in-the-water” type positions.

Marianne Feeley, Asia-Pacific head of research at Mercer, said: “Asian search activity can experience considerable variability from one year to the next given the diversity of clients in the region. In 2008, we expect to see growing demand for alternatives, especially given current volatile market conditions, but as with 2007 we expect a measured approach reflecting investors’ emerging understanding of this asset class.”

North America

US search activity increased to 280 in 2007, from 267 searches in 2006, mainly because of a rise in the number of defined contribution (DC) searches from 157 to 170. The number of defined benefit (DB) and other searches was unchanged at 110, but the value of assets placed in DB searches continues to exceed those placed in DC searches.

“We expect 2008 search activity to stay at current levels as plan sponsors continue to diversify into higher alpha-generating asset classes, such as global/international equities, distressed debt and other alternative strategies.” said Jeff Gabrione, Mercer’s head of investment manager research for the Americas. “However, there may be additional searches as plan sponsors increase the frequency of asset liability studies and adopt new methods of portfolio analysis and risk budgeting.”

Canada saw a considerable increase in activity in 2007, at 120 searches (up from 101 in 2006), led by global equity searches. Overall aggregate assets placed were down slightly at US$5.9 billion (compared with US$6.1 billion the prior year), but were still well above 2003, 2004 and 2005 levels.

While the number of Canadian equity searches increased, these were overshadowed by the combined growth of non-domestic equity mandates. Equity funds with a socially responsible or ESG (environmental, social and corporate governance) focus generated some interest. “With some traditional managers now starting to consider the impact of climate change in their research, we expect to see more dialogue between plan sponsors and managers about the role of ESG issues on investment decisions,” said Mr Gabrione.

Australia and New Zealand

Search activity in Australia declined to 82 in 2007 from 110 in 2006; however the amount of assets placed increased from US$9.3 billion to US$10.1 billion, reflecting a trend for larger placements.

Australian and global equity were the largest drivers of search activity in Australia, with several clients conducting overall reviews of their Australian equity allocation. For the second year running there has been a developing interest in responsible investment, a trend which Mercer expects will continue into 2008.

“The number of searches in emerging markets equity increased substantially, with Australian clients favouring global emerging market mandates rather than region or country specific mandates. Also after several years of minimal activity there were multiple searches for currency managers, due to recent fluctuations in the value of the Australian dollar,” Ms Feeley said.

New Zealand search activity topped the US$1 billion mark and 2007 was a landmark year in terms of the total number of searches, which equalled the total number carried out for the previous three years, combined.

Manager selection covered the spectrum of the more traditional asset classes, with global equity dominating the activity. There was a notably higher interest in New Zealand equities.

A major catalyst for overall increased search activity was the move by the New Zealand Government, at the end of 2006, to remove the tax advantage held by passive offshore equity funds investing in countries where mutual tax treaties are in place.

“2007 was something of a ‘catch up’ year as, prior to this, investors were inclined to hold off on material portfolio adjustments as they awaited finalisation of Government decisions on changes to investment tax,” said Ms Feeley.

Copies of Mercer’s Manager Search Trends: 2007 Year-End Report cost US$2,000 and can be purchased at www.mercer.com/managersearchtrends. The full report includes country-specific commentary for France, Germany, Ireland, The Netherlands, Portugal, Spain and Switzerland in addition to the countries and regions highlighted in this release.

Notes for Editors

Manager search is the process that takes place when an institutional investor, such as a pension fund, is seeking to hire an investment manager to manage a portfolio of assets on its behalf. This hiring activity can arise as a result of growth in assets under management, a change in investment strategy, a change in investment manager structure, or a decision to replace an incumbent investment manager.

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