Graeme Miller: Head of investment consulting at Watson Wyatt.
How have asset allocations changed in 2007?
In general, our clients have not made significant changes to their asset allocations over 2007. Our clients' portfolios continue to include a range of asset classes that seek to exploit a range of diverse risk premium.
What sort of advice will you be giving your clients in 2008?
The investment landscape is changing at a faster pace then ever. It is becoming more complex, and more inter-connected. Our clients are experiencing more competition than ever, for members, for investment opportunities and for talent.
What kind of investment strategies will you see emerge next year?
We expect many of the current trends to continue. For example within equities, we will continue to see a move away from low tracking-error benchmark hugging managers towards higher conviction, less benchmark focused strategies at one extreme, and towards more passive structures at the other.
Institutional investors will become less prepared to pay active management fees for passive outcomes, and will increasingly embrace new strategies to obtain their beta exposures. We will also see more focus on after-tax investment outcomes, as well more scrutiny of manager fee structures to test the levels of alignment between fund managers and their clients. We also think that the trend towards taking sustainability into account when making investment decisions is likely to continue to gather pace.
Simon Eagleton: Head of Mercer Investment Consulting
How have asset allocations changed in 2007?
The theme of the past few years of pursuing further diversification of capital market risks, otherwise know as beta, has certainly continued. This has been through additional allocations to overseas assets such as infrastructure, global property and emerging markets or through seeking a much greater contribution to return from manager skill or alpha. The latter has been achieved through greater allocations to hedge fund of fund or multi-strategy funds, as well as greater use of strategies like 130/30.
How has your business evolved in 2007?
Mercer has grown over the past year in all areas of our business including our traditional work for large super funds but also for endowments, foundations and insurers. Our retail initiatives in providing global research services to the financial planning community have also been very successful.
What will be the sort of advice that you will be giving your clients in 2008?
The way to win in investment is to pursue incremental improvement in everything. This means further diversification of beta exposures without compromising long term returns, and more alpha. In the coming year we expect our clients will be looking at operational aspects of their investment programs including operational risks within their investment managers and custodians as well as transaction costs - such as improving after tax results. Risks associated with sustainability covering environmental, social and governance issues as well as the sustainability of client's manager structures to deliver consistent alpha will gain increasing focus.
What kind of investment strategies will you see emerge next year?
More 130/30 style alpha extension approaches particularly in global equities. More absolute return approaches in various forms and a continued broadening of fixed income managers' alpha toolkit.
