The exchange traded fund industry has been feted as offering low cost access to a wide range of investment opportunities. It has occasionally had its knuckles rapped for getting over-enthusiastic about short and leveraged products that may not track in the way investors expect. But generally, the plain vanilla FTSE 100 or S&P 500 ETFs have been seen as A GOOD THING.
Now along comes Watson Wyatt to throw a bucket of cold water on the ETF party. The consultant says institutional investors can get a better deal elsewhere. There are institutional index products with lower fees, a better tax structure, and less or no counterparty risk.
One in three Americans believes aliens have landed on Earth and are dwelling among us. There are quite a lot of things they do not believe in, however, including the importance of the fluffy stuff in investment.
Parallel reports from the European and US social investment forums on the perception of environmental, social and governance issues among investment consultants seem to show American consultants are much less comfortable with the concepts and less inclined to see them as a natural part of investment consultancy. This despite a general belief (expressed by 88 per cent of respondents) that client interest in these matters will increase in the next few years.
Despite the academic hours put into debating whether active fund managers outperform, no one has definitively won the argument it seems.
The debate has been fuelled recently by papers from Eugene Fama and Kenneth French (Luck versus Skill in the Cross Section of Mutual Fund α Estimates) and Laurent Barrat, O. Scaillet and Russ Wermers ( False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas).
Neither make good reading for active managers.
Pensions bonanza cancelled
Now it’s official – the much trumpeted pension buy-out market has fallen flat. And just to spell it out, a report by Punter Southall called the False Dawn reveals that most (about 84 per cent) pension schemes trying to transfer liabilities to an insurer through a buy-out would find it cheaper to just adopt the same low-risk investment strategy an insurer would use.
Just about everyone would like to make some amendments to the proposed EU regulations for the alternative investment industry, from hedge funds to governments, industry consultants and pension schemes.
The latest laments come from Mercer, the pension consultants, and their pension fund clients who agree the industry needs improvement and better supervision but call for Brussels to take a broader look outside the EU to see what is happening to the industry on a global regulation front.
Consultants: nice to have, but not essential. That at least seems to be the message struggling financial services companies are sending, as consultants such as KPMG and PricewaterhouseCoopers find themselves with time on their hands instead of rushing to the rescue of grateful clients.
At least one firm has asked its consultants to work only three or four days a week, without mentioning it to clients, while PwC was able to find six partners free at once to have lunch with a couple of journalists this week.