Mercer's investment consulting business has released data on its global investment manager search activity for 2008. The  report provides insight into institutional investment manager hiring patterns and trends across the world, and is based on activity reported through Mercer's global client database.

Highlights include:

• Search activity slows down on a global level – Europe, Australia and New Zealand see drops in activity while a slight increase is observed in North America and Asia
  
  
• International equity remains the dominant search category
  
  
• Search activity increases for private equity and multi-strategy hedge funds
  
  
• Value of assets placed through Mercer’s manager search activity totalled US$93 billion in 2008, with an average placement of US$139 million

Overview

Globally, manager search activity is slowing down as investors focus their attention on strategic issues.

The most notable decreases were seen in the UK, Continental Europe and Australia where funds focused on strategy issues rather than manager changes and structures. In New Zealand the number of searches also dropped after a year of high levels brought on mainly by tax changes. In the US, search activity was up as plan sponsors reacted to the large losses in equity markets by reconsidering their policies and making some tactical decisions on rebalancing, as well as replacing managers who had performed exceptionally poorly.

International equity (including all global, EAFE and other global ex domestic) remained the dominant search category while there has been a decline in domestic equity searches in Continental Europe and the UK.

Andy Barber, global head of manager research at Mercer, commented: “Plan sponsors across the globe have been busy analysing how last year’s unprecedented market conditions are shaping their investment strategies going forward.

What's covered

Mercer examines search activity in Asia, Australia, Canada, Europe (ex UK), which includes country-specific analyses for France, Germany, Ireland, the Netherlands, Portugal, Spain and Switzerland. We conclude with reviews of New Zealand, UK and US search activity.

Regions included

Europe

In 2008, 189 searches were conducted in the UK, with total assets placed declining to US$26.1 billion from US$29.2 billion in 2007. Search activity in alternatives was lower than anticipated at the start of the year. Contrary to this general trend, multi-strategy hedge funds witnessed a large pick up last year. Andy Barber,global head of manager research at Mercer, commented: “We share the market consensus view that, after the events of 2008, there will be a considerable shake-out in the hedge industry. Ultimately, the industry may emerge stronger, but we nonetheless expect some clients to be wary of the alternatives sector for a while.” 

In the rest of Europe the individual countries that showed the highest percentage fall in activity were Switzerland and Spain. Elsewhere search activity remained at similar levels to 2007.

North America

In the US, search activity was fairly strong compared to 2007 (up to 123 from 110). The number of defined contribution (DC) searches (151) continued to outpace defined benefit (DB). The value of assets placed in DB searches, however, continued to exceed the assets placed in DC searches. Global/international equity continued to be the most frequently sought asset class in both DC and DB plans. Jeff Gabrione, principal in Mercer’s research team in the US, said: “Given the continued capital market volatility we expect 2009 search activity to be uneven as sponsors evaluate their asset allocation policies, manager performance/risk and liquidity. In the DC market we expect to see increased use of separate accounts and commingled funds as alternatives to mutual funds due to a greater scrutiny of fees."

Canada maintained approximately the same level of search activity overall in 2008 as in 2007 (124 searches). The volume of searches rose for equities and alternatives, but declined by two-thirds for fixed income. Sharon Wilson, principal in Mercer’s research team in Canada, said: “Given the recent markets, we believe that sponsors will pay close attention to the risk-reward trade-off inherent in investment strategies, relative to liabilities. We expect to see strong continued interest in liability-driven solutions, both customised and packaged."

Asia-Pacific

Search activity in Asia increased slightly in 2008, however no strong trends emerged. The most common search category remained global/international equities. Marianne Feeley, principal in Mercer’s Asia Pac research team. said: “Asian search activity continues to vary from one year to the next given the diversity of clients in the region. In 2009, although many clients may like to review their existing manager structures and line-up, early indications are that most clients are putting such activities on hold while the volatile global market conditions persist.”

Search activity in Australia declined to 61 in 2008 from 82 in 2007; however the amount of assets placed increased, reflecting a trend for larger placements. “We saw 2008 as a year of two parts, with worries over the global financial crisis acting as a damper on search activity towards the latter half of the year,” said Ms Feeley.

For New Zealand, 2008 saw a return to normal search levels (26) after a particularly busy year in 2007, driven primarily by tax changes. Searches in 2008 were dominated by global rather than domestic asset class searches, with global fixed income making up the highest percentage of assets placed.