Towers Watson concerned about smart beta proliferation

BetaTowers Watson says it is concerned about the proliferation of products claiming to be smart beta, particularly in the equity area, as allocations among its

clients more than doubled last year.

Allocation to smart beta strategies reached $11 billion (€8 billion) across 180 portfolios.

Craig Baker, global head of investment research at Towers Watson, says: “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 now on the market that claim to be smart beta, particularly in the equity area.”

Its institutional investment clients globally – which include pension funds, sovereign wealth funds and insurance companies – have now over $32 billion invested in almost 500 portfolios across a range of asset classes.

At $12.5 billion, Towers Watson’s clients carried out alternative asset class selections worth more than four times as much last year than they did five years ago.

Among alternatives, during 2013, real estate attracted the most interest (over $4 billion), where one quarter is in smart beta, followed by direct hedge funds (over $3 billion), followed by infrastructure (over $2 billion), where one third was in smart beta strategies.

In the same period, direct private equity attracted around $1.5 billion, while illiquid credit attracted about $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,” says Baker.

The findings are based on data from 920 managers’ selections in 2013, reflecting around $79 billion of assets moved for around 300 clients.

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