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Top request to enhance returns: emerging market mandates

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More than half of asset managers report that institutional investor clients request emerging market mandates to enhance returns, diversify their portfolios and mitigate risk in a low return environment, according to new research.

Cerulli Associates, Boston, Mass., discloses this finding in its latest report, “U.S. Institutional Markets 2012.” The study explores investment trends, opportunities and challenges in the ESG space. The report also analyzes service and product strategies, and the implementation of effective sales strategies. 

Asset management mandates (defined investment strategies used by financial institutions) most frequently requested by institutional investors during the past 12 months, the report shows, included emerging market mandates (reported by 55 percent of asset managers), long-duration fixed income mandates (47 percent) and socially responsible/green/sustainable mandates (45 percent).

Less frequently requested by institutional investors, the study adds, were multi-asset class products (40 percent), hedge fund mandates (32 percent) and restrictions against holding certain securities (30 percent). Still less popular were tail-risk hedging products (26 percent), real estate mandates (19 percent), real asset (e.g., timber) mandates (17 percent) and private equity mandates (13 percent).

Turning to exchanged-traded funds, the report concludes that retail, third-party platforms (such as TD Ameritrade and Charles Schwab) were the primary target markets for 93 percent of ETF sponsors. Less frequently cited were model portfolio providers (80 percent), hedge funds (36 percent), authorized participants (33 percent) and endowments and foundations (33 percent).

Other target markets included retail direct investors (33 percent), mutual fund managers (33 percent), large defined contribution plans with more than $50 million in assets (20 percent), small defined contribution plans with less than $50 million in assets (20 percent) and defined benefit or pension plans (7 percent).

The report finds that global single-manager hedge fund assets reached $2.59 trillion in the third quarter of 2012. This compares with $889 billion in global fund-of-hedge-fund assets in the third quarter.