Towers Watson clients change strategy

Towers Watson clients change strategy

Towers Watson’s clients made over twice as many new investments in smart beta strategies during 2013 - around $11bn across over 180 portfolios - compared to 2012 according to global data from the company. Institutional investment clients globally have now allocated more than $32bn to smart beta strategies for almost 500 portfolios across a range of asset classes.

Craig Baker, global head of investment research at Towers Watson said, “It is no surprise to us that smart beta strategies are being implemented at this rate, given their inherent relevance for most institutional investors. 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 and then in more detail in 2002 as beta prime.

While it is 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 on the market that claim to be smart beta, particularly in the equity area.”

The data also shows 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 $12.5bn) as five years ago.

Among alternatives, during 2013, real estate attracted the most interest (more than $4bn), where one quarter is in smart beta, followed by direct hedge funds ($3bn) and infrastructure ($2bn) where one third was in smart beta strategies. In the same period, direct private equity attracted around $1.5bn, while illiquid credit (distressed debt and lending) attracted about $1bn in assets.

“Larger institutional funds are likely to continue to invest 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,” added Baker. “Indeed, there were only three FoHF mandate selections in 2013, which is a demonstration of this point.”