Fund managers specialising in emerging markets (EMs) could see a sizable increase in business as demand for EM equity and debt from US institutions is expected to surge. Further partnerships between global and local EM managers are also likely.
A survey of investment consultants carried out by US consultancy Casey, Quirk & Associates and eVestment Alliance found that more than one-third of consultants are expecting EM equities to see the most search activity in 2011.
A study by Intersec Research had found that relative to broad global indices, the average US institutional investor is under allocated to emerging markets. The average pension plan has committed less than 1% of its total fund to emerging markets equity mandates.
But, according to the Casey, Quirk & Associates survey this is about to change.
The survey was carried out before February 2011 and before the trouble in North Africa and the concern about Asian inflation hit the headlines. However, consultants still believed searches for emerging markets managers are due to increase this year. This is because, as shown by the Intersec research, their clients are underweight in developing economies.
The survey results noted that EMs required specialist managers and therefore one wonders whether this will see indigenous fund managers winning business.
Yariv Itah, partner at Casey, Quirk & Associates, said: “Most likely, local managers will be used or partnered with, because of their specialised local knowledge.”
Itah also said that a few highly sophisticated US institutions will be looking to allocate to EM real estate. These investors may well be starting a trend as he said: “The rest of the market might follow several years down the road if these ventures are successful.”
The survey indeed found that real estate was back on the cards as the respondents expected US institutions to increase investment in overseas property to hedge themselves against inflation.
Inﬂation fears were said to be driving demand for illiquid investments and overseas real estate is at the top of that list.
Itah explained: “Foreign real estate is in the sweet spot of several trends: The trend to decrease home-country bias and increase investments overseas; increase investments in real estate; increase investments in assets that provide a hedge against inflation.”
And it’s not just US institutions that are jumping on the real estate bandwagon. Norway’s sovereign wealth fund, the Norwegian Pension Fund – Global also made its first allocation to the asset class.
The fund announced its ﬁrst real estate investment in November last year which is set to be completed in spring 2011.
©2011 funds europe