According to research from Northern Trust, small, entrepreneurial investment management firms maintained a performance advantage over larger, established firms through the economic downturn.
Firms with less than US$2.6 billion in assets under management (AUM) delivered stronger performance with less volatility in the five-year period ending December 31, 2008.
“Six studies of emerging investment manager performance spanning 16 years of stock market history have demonstrated that the smallest firms, collectively accounting for only 1% of institutional market share, enjoyed a consistent advantage over industry leaders,” says Ted Krum, CFP, vice-president, portfolio management at Northern Trust Global Advisors.
The study examined the five-year performance data for 476 active core U.S. equity products managed by 282 firms, with a total AUM of $11.7 trillion and found:
• 33% of firms in the top quartile of performance had less than $2.6 billion in AUM;
• small firms outperformed the index by an average of 0.51% per down-market period;
• the median small manager outperformed the median large firm by 0.41% per year, for cumulative savings of more than $4 million on a typical $200 million institutional allocation over the five years studied; and
• small firms delivered these results while taking less risk, as measured by standard deviation.
“We hear often that institutional clients hire the largest firms because they view them as safer than emerging firms. In reality, this decision may expose clients to excess volatility without adequate compensation in terms of full-cycle performance,” says John McCareins, investment program manager for Northern Trust Global Advisors. “These results imply that manager selection skills may be applied more profitably to turning over rocks in the small firm universe than in selecting the household names of investment management.”
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Pension funds can’t stop Chrysler sale
Despite objections from the Indiana State Police Pension Trust, the Indiana State Teachers’ Retirement Fund and the Indiana Major Moves Construction Fund, the 2nd U.S. Circuit Court of Appeals found that a U.S. bankruptcy judge properly allowed the sale of Chrysler LLC’s assets to Fiat SpA.
The appellate panel found that the three pension funds were wrong to argue that Chrysler’s disputed auto-manufacturing asset sale represented an impermissible bankruptcy reorganization plan.
In its reasons, the court explained that Chapter 11 allows debtors-in-possession to use, sell or lease estate property outside the ordinary course of business, because it can be advantageous for a debtor to begin selling assets quickly to ensure that they do not lose value.
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Barclays promises pension rethink after protests
A month after announcing plans to close its defined benefit pension plan, Barclays is now looking at how it can enhance the plan following furious pushback from one of its unions.
The company previously said it would close the plan in order to make up a £3.5 billion (C$6.3 billion) deficit, but after a noisy shareholder meeting on Thursday, which was picketed by the union Unite, the company revealed that possible changes are in the works.
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U.K. workers prepared to sacrifice benefits for extra cash
In an illustration of how the global recession is affecting the average person, the results of a recent Aon Consulting survey suggest that nearly half of U.K. workers would forgo their benefits in return for cold, hard cash.
The survey of 1,300 working adults across the U.K. found that 47% of respondents were more concerned about taking home as much pay as possible, while more than a third (37%) would rather sacrifice some of their salary in order to have a greater choice in benefits.
Workers age 35 and under were less concerned about having a greater choice of benefits, with more than half (54%) preferring to boost their paycheques. Conversely, workers 45 and over placed more value on employer-sponsored benefits, with 44% willing to trade off salary for a wider choice of benefits.
The benefits most favoured by workers include higher pension contributions, greater illness and injury protection, extensive annual leave, training and alternative health treatments.
“Given the current economic climate, it is perhaps not surprising that the majority of workers are keen to increase their take-home pay,” says Gareth Ashley-Jones, head of flexible benefits with Aon Consulting. “However, employees need to make sure they fully understand the value of having a greater choice of benefits that, in the long term, will provide, perhaps, greater security.”
He urges organizations to do more to educate employees about the value of the benefits they offer and to help workers “protect themselves from themselves.”