Investment Diversity Wins

ARLINGTON, Va., Feb. 29, 2016 -- Willis Towers Watson’s (NASDAQ:WLTW) institutional investment clients globally allocated $10 billion, via 175 selections, to diversifying investment strategies¹ in 2015. Within this grouping, liquid alternatives² attracted the most interest with over $8.1 billion, of which approximately half is in smart beta and $1.9 billion is in secure income strategies.³

“Our clients continue to diversify their portfolios to protect against downside risks while also rotating toward higher-skill mandates that take advantage of increased market volatility,” said Brad Morrow, head of Manager Research in the Americas, Willis Towers Watson. “Clients continue to use smart beta solutions, as reflected in the high number of selections, which utilize systematic approaches to exploit alternative risk premium that provide true diversity beyond equity and credit.”

The data also show that last year, Willis Towers Watson’s clients — which include pension funds, sovereign wealth funds, endowments and foundations, and insurance companies — carried out 215 credit selections totaling almost $18 billion, of which a significant proportion remains in higher-quality credit ($5.9 billion in global bond mandates and $3.3 billion in U.S. mandates).

“Even in higher-quality credit, we observed a move toward solutions with superior downside protection,” said Morrow. “Last year, we recognized more value in high-quality structured credit over vanilla investment-grade corporate credit, driven largely by regulatory factors. We sought a way to capture this opportunity and helped structure an exclusive implementation option for our clients: It attracted over $5 billion of client capital in 2015.”

The company’s clients invested $6.6 billion in alternative credit mandates in 2015, of which $1.4 billion was in credit hedge funds and $1.3 billion in illiquid credit. The number of selections in alternative credit (98) more than doubled compared to the prior year.

“Alternative credit was underexploited by investors in the past, both in terms of asset allocation and implementation efficiency,” said Morrow. “However, this is changing, and last year, we conducted a record number of alternative credit searches as many clients sought to reduce reliance on the equity risk premium, improve diversity and bring additional sources of return to their portfolios.”

Within equities, global mandates, totaling around $8.2 billion, continued to be the most popular with clients in 2015, followed by Australian equities ($3.1 billion), and a record amount of new capital was allocated to equity smart beta strategies ($2.6 billion). Emerging-market equities attracted $2.2 billion, while $3 billion was invested in U.S. equities. After significant capital deployment in private equity in 2013, clients favored more niche illiquid strategies over a more traditional buyout approach and, as a result, private equity attracted fewer assets than in previous years ($500 million). In total, equity mandate selections in 2015 accounted for $21.5 billion in assets via around 250 selections.

“Widely spread de-risking has caused a decline in traditional equity searches, along with fewer like-for-like mandate replacements,” said Morrow. “Instead, allocations are getting more strategic with more substantial shifts, resulting in a greater average allocation size than in previous years. Equity smart beta has continued to be very popular as a way to improve our clients’ equity market exposure, with two and a half times more capital allocated to this strategy last year compared to the year before.”

During 2015, Willis Towers Watson’s institutional investment clients globally carried out over $7 billion of selections across various types of smart beta strategies, bringing the total exposure to around $46 billion across a range of asset classes.

“It is positive that investors are thinking smartly about betas across all return drivers in their portfolios, but we are genuinely concerned about the proliferation of products claiming to be smart beta, particularly in the equity area,” said Morrow. “Not all smart beta is created equal. It should be easy to describe and understand, but many labeled products are not: Investors should retreat from these.”

Investment manager selection activity globally at Willis Towers Watson reached over 730 selections in 2015, reflecting around $60 billion of assets for over 270 clients.

About Willis Towers Watson Investment

Willis Towers Watson’s Investment business is focused on creating financial value for institutional investors through its expertise in risk assessment, strategic asset allocation, fiduciary management and investment manager selection. It has over 850 associates worldwide, assets under advisory of over $2.2 trillion and over $75 billion of assets under management.

About Willis Towers Watson

Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com. 

¹. Diversifying strategies provide investors with exposure to diversifying risk premiums.

². Liquid alternatives include listed real estate, listed infrastructure, listed real assets, systematic, macro, reinsurance and alternative beta strategies.

³. Secure income assets are long-term illiquid strategies with the following characteristics: contractual, long-term cash flows; long-term leases/concessions that are difficult to break; strong counterparties or motivation to continue paying; most economic value from contractual cash flows.

Media contact
Ed Emerman: +1 609 275 5162
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