Towers Watson Sees Clients’ Smart Beta Assets Double in a Year
NEW YORK--(BUSINESS WIRE)--Global professional services company Towers Watson’s (NYSE, NASDAQ: TW) institutional investor clients made over twice as many new investments in smart beta strategies during 2013, approximately $11 billion across over 180 portfolios, compared to the year before (approximately $5 billion across almost 130 portfolios), according to company data. Towers Watson’s clients globally have now allocated over $32 billion to smart beta strategies to almost 500 portfolios, across a range of asset classes.
“Throughout the past five years, the alternative fund managers that we have put into client portfolios have shown their ability to adapt to the changing environment to generate good net-of-fees performances”
“It is no surprise that smart beta strategies are being implemented at this rate, given their inherent relevance for most institutional investors,” said Craig Baker, global head of investment research at Towers Watson. “Interestingly, it has taken some time to get to this point, given that we started developing the concept in 2000 as part of our work on structured alpha, then in more detail in 2002, as beta prime. While it’s satisfying that our clients have been able to benefit first from a range of smart beta strategies, we are somewhat concerned about the proliferation of products now on the market that claim to be smart beta, particularly in the equity area.”
The data also show that, last year, Towers Watson’s clients — which include pension funds, sovereign wealth funds and insurance companies — carried out alternative asset class selections worth more than four times as much (over $12.5 billion) as they did five years ago. Among alternatives, real estate attracted the most interest (over $4 billion), where one-quarter is in smart beta, followed by direct hedge funds (over $3 billion) and infrastructure (over $2 billion), where one-third was in smart beta strategies. In the same period, direct private equity attracted approximately $1.5 billion, while illiquid credit (distressed debt and lending) attracted roughly $1 billion in assets.
“Throughout the past five years, the alternative fund managers that we have put into client portfolios have shown their ability to adapt to the changing environment to generate good net-of-fees performances,” said Baker. “Larger institutional funds are likely to continue investing in funds directly for most alternative asset classes rather than via funds of funds, as investors continue to focus on better fee structures, greater transparency and smart beta options. Indeed, there were only three fund of hedge funds mandate selections in 2013, which demonstrates this point.”
According to the data, bond selections by Towers Watson’s clients in 2013 totaled $22 billion, of which the majority were invested in global (approximately $11 billion) and U.S. (roughly $5 billion) mandates, followed by emerging-market mandates (approximately $3 billion). In 2013, the total number of multi-region bond selections exceeded the combined total of all single-region bond mandates.
“These figures confirm a longer-term trend of investors seeking greater efficiency, diversification and diversity in bond mandates, for example, favoring global solutions over a home-market bias, and an increasing acceptance of alternative credit asset classes into the strategic asset mix,” said Baker.
In equities, global mandates (totaling approximately $10 billion) continued to be the most popular with Towers Watson's clients in 2013, followed by U.S. equity (roughly $3 billion), global ex-U.S. equity and U.S. small/mid-cap equity mandates (each approximately $2 billion). In total, equity mandate selections last year accounted for approximately $24 billion in assets.
“These figures confirm an established trend of investors investing away from local markets as they seek to diversify their portfolios more globally. Interestingly, the number of equity smart beta mandates doubled in 2013, and tripled in size of assets, compared to the year before,” said Baker.
Manager selection activity globally at Towers Watson exceeded 920 selections in 2013, reflecting around US$79 billion of assets moved for approximately 300 clients. This compares to assets moved of roughly US$68 billion, for approximately 690 selections, five years ago.
Towers Watson Investment
Towers Watson Investment is focused on creating financial value for the world’s leading institutional investors through its expertise in risk assessment, strategic asset allocation, fiduciary management and investment manager selection. Towers Watson’s Investment business has around 800 associates worldwide, assets under advisory of over US$2 trillion and over US$60 billion of assets under management.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at towerswatson.com.