Last updated: 09:38 / Monday, 8 August 2016
According to Cerulli

Exclusivity's Losing Its Edge

Exclusivity's Losing Its Edge

Institutional investors across Europe are steadily increasing proportional investment exposure via mutual funds, even where mandates could be demanded, according to the latest issue of The Cerulli Edge - Global Edition.

Cerulli Associates, a global analytics firm, says statistics suggest that, while insurers are leading the way, the trend in Europe is pan-institutional. For example, German pensions' proportional exposure via funds rose from 41.3% in 2011 to 50.1% in 2015.

"In the search for better investments, insurers are turning to less familiar asset classes--prompting the use of funds rather than segregated accounts to make their investments. There is clearly a greater willingness to have commingled investments," says David Walker, director European institutional research at Cerulli.

He notes that early allocations to less well-trodden asset classes will be smaller, and therefore the volumes involved may not justify, in either the insurer's or asset manager's eyes, a separate account. That said, even in some of the more familiar yield classes--for instance high yield and emerging market debt--certain insurers prefer funds as these are easier to enter and exit compared with being in a segregated account.

"One manager Cerulli interviewed uses geography to split his insurer clientele's preference for commingled/pooled structures, or investing via mandates. He has mutual funds more generally in France, Germany, Italy, and Spain, but mandates typically in the UK and Europe's north," says Walker.

He notes that some institutions are not willing to forfeit the influence over the strategy/risk exposures and the briefings that are part and parcel of a mandate-based relationship. For some institutions, not knowing the identity of the other coinvestors in a broader pooling vehicle is a step too far.

"Some insurers seeking prize investment assets such as buildings or infrastructure projects in this yield-starved environment argue that they lose competitive edge by 'sharing' them with rivals in a pooled structure," says Walker.