Cogent Reports: Institutional Investors Question the Value of Active Management

CAMBRIDGE, Mass.--()--Many institutional investors, particularly corporate pensions and 501(c) tax-exempt organizations, are forecasting substantial increases in their allocation to passively managed investments over the next three years. While the majority of institutional assets are currently actively managed, the shift anticipated by corporate pensions and tax-exempt institutions, which collectively represent nearly half (49%) of all institutions, could dramatically affect the market share of the leading institutional asset managers. These and other findings are included in the annual US Institutional Investor Brandscape®, a Cogent Reports™ study by Market Strategies International.

According to the report, 39% of corporate pensions and 11% of tax-exempt institutions plan to decrease their holdings in actively managed US public equities over the next few years. In addition, 11% of tax-exempt institutions report a desire to reduce their active US fixed income allocations. Corporate pensions anticipate an increase in allocation to US fixed income, both active and passive, while tax-exempt institutions show more interest in passively managed equity strategies in the US and international markets.

“While the potential shift away from active management should be enough to sound the alarm for institutional asset managers, it is more important for these firms to understand the drivers of these changes from the customer’s perspective,” says Linda York, vice president and lead author of the study. “Corporate pensions are increasingly focused on de-risking their portfolios and are citing concerns about fees as their main reason for seeking passive investments. In contrast, tax-exempt institutions are much more likely to be questioning the value that active management provides, and are showing some skepticism that active management is worth the price and delivering performance over and above that which passive management offers.”

The study asked institutional investors to identify the primary drivers for their anticipated increases to passive management. One-third of all pensions, including 29% of corporate pensions, rate costs and fees as their top contributing factor, compared with just 6% of tax-exempt institutions. The question of active management not performing or not worth the price is cited by more than one-quarter of non-profits, compared with just 8% of corporate pensions.

“The impact on institutional asset managers is clear,” continues York. “These firms must continually prove the value of their offering—whether active or passive—and deliver on the strong, consistent investment performance that these institutional investors expect.”

About US Institutional Investor Brandscape

Cogent Reports conducted an online survey of a representative cross section of 599 investors with $20 million or more in institutional investable assets from October 10 to December 2, 2013. Survey participants were required to play a direct role in the evaluation and selection of investments or asset managers within their organizations. In determining the sampling frame for this study, Cogent Reports relied upon the Standard & Poor’s Money Market Directories (MMD) database of institutional investors. To ensure the population for this research was representative of the universe of institutional investors, strict quotas were established by Cogent based upon a nested classification of institutional investor category and size of assets. Minimal weighting was applied to adjust for purposeful deviations from the actual marketplace distribution. The data have a margin of error of ±4% at the 95% confidence level. Market Strategies will supply the exact wording of any survey questions upon request.

About Market Strategies International

Market Strategies International is a market research consultancy with deep expertise in communications, consumer/retail, energy, financial services, healthcare and technology. The firm is ISO 20252 certified, reflecting its commitment to providing intelligent research, designed to the highest levels of accuracy, with meaningful results that help companies make confident business decisions.

Market Strategies conducts qualitative and quantitative research in 75 countries, and its specialties include brand, communications, customer experience, product development, segmentation and syndicated. Its syndicated products, known as Cogent Reports, help clients understand the market environment, explore industry trends and evaluate and monitor their brand and products within the competitive landscape. Founded in 1989, Market Strategies is one of the largest market research firms in the world, with offices in the US, Canada and China. Read Market Strategies’ blog at FreshMR, and follow us on Facebook, Twitter and LinkedIn.

Contacts

Market Strategies International
Anne Fallon, 617.715.7611
anne.fallon@marketstrategies.com

Drivers of Increases to Passive Investments (Graphic: Business Wire)

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Release Summary

Many institutional investors, especially corporate pensions and 501(c)3 nonprofits, forecast substantial increases in their allocation to passively managed investments over the next three years.

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Contacts

Market Strategies International
Anne Fallon, 617.715.7611
anne.fallon@marketstrategies.com