Fund Managers Optimistic for 2009
January 12 2009 - 12:26PM
PR Newswire (US)
Concern About Inadequate Retirement Income from DC Plans
WASHINGTON, Jan. 12 /PRNewswire-FirstCall/ -- Fund managers
globally have a generally optimistic outlook for 2009 and predict
that markets in most regions will begin to recover this year,
according to a survey by Watson Wyatt, a leading global consulting
firm. The global survey of fund managers, who collectively have
assets under management of over US$10 trillion, indicates that the
period of recovery in most markets will be protracted; the
influence of hedge funds and investment banks will decline
significantly while that of pension and sovereign funds will rise;
and there will be continued growth in demand for alpha from
investors. Furthermore, fund managers expect to see their
institutional clients opting for more conservative investment
strategies as well as prioritizing greater risk control as the main
area for improvement in their governance. In addition they pointed
to, as their top concerns during the next 10-20 years, inadequate
retirement incomes from DC for large segments of the population and
greater regulation increasing costs for everyone. Carl Hess, global
head of investment consulting at Watson Wyatt, said: "While the
long-term effects of this global crisis will take some time to
manifest, it is crucial for investment professionals to be thinking
ahead so as to develop and implement winning strategies that add
value for their clients in an increasingly unpredictable and
competitive marketplace. The views expressed by this influential
group give us some valuable insights and should inform how, why and
when key investment decisions are made." According to the survey,
which was conducted at the end of 2008, managers hold overall
bullish views of returns on public equities, investment grade
bonds, high yield bonds and emerging markets over the next 5 years.
However, for the same time horizon, they hold fairly bearish views
of returns on hedge funds, government bonds, money market and real
estate, while remaining largely neutral on private equities and
currencies. Regarding equities, respondents expect stock markets to
revert to historical return levels by 2012, while predictions about
returns in 2009 vary significantly by region. According to the
median view of managers, anticipated returns on global equities in
2009 is 6.7% with U.S., U.K., Eurozone, Australian, Japanese and
other Asian equity markets expected to deliver 8.8%, 5.0%, 5.5%,
8.0%, 5.0%, and 10.0%, respectively. The survey also shows expected
equity volatility for 2009 in the elevated range of 20-25%, higher
than the historical average but lower than that experienced during
2008. With regard to bonds, the survey indicates that real yields
on government securities, both short and long-term, are likely to
remain low and comparable to the depressed levels of late 2008.
However as the global economy recovers, government yields are
expected to increase while corporate spreads shrink correspondingly
- this shift being in a 100 to 200 basis point range and taking
three years to complete. In terms of the tools required for
investment success in 2009, managers' top three are: adequate risk
controls, portfolio diversification, and added value through active
management, while they expect the top issues among their clients to
be risk management, asset allocation and underperformance. The
survey also covered managers' macroeconomic forecasts, and reveal a
consensus about a recovery in the US housing market being underway
by the third quarter of this year; about the same time as the start
of a recovery in the other main markets. However, a significant
number of respondents indicate that problems could linger until
2012 in the Japanese housing market. Regarding the crude oil price,
the consensus is that it is expected to reverse its current sharp
downward trend and move to around US$60 a barrel during 2009 and to
US$80 a barrel in 2012. Regarding the medium-term general economic
outlook, managers are sanguine and expect real GDP to return to
robust growth globally; unemployment rates to return to normal; and
inflation, accompanied by increases in interest rates, to return.
Carl Hess said: "Not unlike the views expressed by some of these
investment managers, we have great expectations that the trauma of
the past 18 months will have positive and lasting influence on
institutional fund investing, if some lessons are learned. Chief
among these would be: pension plan investing really is a long-term
game and that investment behavior should genuinely mirror this;
that the governance capability of a fund should determine the
sophistication of its investment strategy; that risk is
multi-faceted and deserves multiple metrics for its measurement and
monitoring; and that alpha will always be in short supply and only
reliably available to the very best investors. Regardless of
managers' optimism, which is an enduring - and sometimes endearing
- characteristic of the industry, I think it will be lessons like
these, put into practice in 2009, that will give pension plans the
edge they need in a fast-changing, competitive investment world."
About Watson Wyatt Investment Consulting Watson Wyatt Investment
Consulting, a division of Watson Wyatt, is focused on creating
financial value for institutional investors through independent,
best-in-class investment advice. We are specialist investment
professionals who provide co-ordinated investment strategy advice
based on expertise in risk assessment, strategic asset allocation,
and investment manager selection. Watson Wyatt Investment
Consulting provides investment advice to some of the world's
largest pension funds and institutional investors, and has more
than 550 associates in Europe, the Americas and Asia. In the US
investment advisory and investment consulting services are provided
by Watson Wyatt Investment Consulting, Inc., which is a subsidiary
of Watson Wyatt Worldwide Inc. Watson Wyatt Investment Consulting,
Inc., is a registered investment adviser with the Securities and
Exchange Commission. About Watson Wyatt Worldwide Watson Wyatt
(NYSE:WWNASDAQ:WW) is the trusted business partner to the world's
leading organisations on people and financial issues. The firm's
global services include: managing the cost and effectiveness of
employee benefit programs; developing attraction, retention and
reward strategies; advising pension plan sponsors and other
institutions on optimal investment strategies; providing strategic
and financial advice to insurance and financial services companies;
and delivering related technology, outsourcing and data services.
Watson Wyatt has 7,600 associates in 32 countries and is located on
the Web at http://www.watsonwyatt.com/. DATASOURCE: Watson Wyatt
Worldwide CONTACT: Ed Emerman for Watson Wyatt Worldwide,
+1-609-275-5162, , or Steve Arnoff of Watson Wyatt Worldwide,
+1-703-258-7634, Web Site: http://www.watsonwyatt.com/
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