It seems that both strategic and tactical asset allocation is in transition. Strategically, conventional approaches used over the past 30 years are being called into question. Analysis of risk measures and correlation between asset classes are being challenged. A generally accepted new approach may emerge, but we haven’t seen it yet.
Tactically, there is evidence of some rebalancing into equities after the big drop, but not yet sufficient to return to pre-bear market levels, although the rally of the past six months has helped. Many investors have not taken the actions necessary to return their portfolios to their strategic allocation.
The severity of the recent market events will affect investor behavior for some time. One beneficial aspect of this period is that it will generate some new thinking around asset allocation which is likely to inform investors in the future.
September 23rd, 2009
Selling investment management services to institutions has always been a consultative process. Sophisticated investors want to understand and appreciate the capabilities of an asset management firm. This knowledge is generally transferred over a period of time in a series of encounters between personnel from the asset manager and institutional investors. However, for quite some time, the marketplace has forced these capabilities into buckets with specific names. Initially they were styles within asset classes, such as large cap growth and high yield fixed income. Then, we had the division between traditional and alternative investments. This has been followed by more solutions-based strategies such as Liability Driven Investing.
When businesses flourish, there is a tendency to keep things the same as much as possible. Therefore, changes in business approach are slow, and the investment management industry has experienced this until recently. For example, the death of style boxes has been discussed for many years, but many manager searches still are defined by style box. However, industry and market events of the past year are likely to disrupt this relative stability. More and more managers are telling me that their opportunities are now about specific customized capabilities rather than defined products. Artificial distinctions between alternative and traditional strategies are blurring. Easy labeling is fading in favor of specific descriptions of capabilities designed to meet specific client needs. In order to succeed in this new environment, managers must meet the challenge of convincing institutions that they can fit their capabilities to client objectives, while continuing with their focused consultative approach.
July 20th, 2009
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