Mercer’s new head of portfolio management Ronan McCabe said the firm is weighing whether to allocate money to cheaper smart beta strategies away from actively-managed funds.
McCabe, who was appointed to the role in March, said the money potentially saved could then be reinvested into private-asset strategies where fees are typically higher. Speaking at Investment Magazine’s Equity Summit in Sydney, he said while active investing remained part of Mercer’s “core beliefs,” it ultimately came down to clients, many of whom were “super sensitive” to fees.
“If you think you can get bigger bang for your buck in certain private assets or different strategies, you might think about reallocating some money out of active into passive and the fees savings can be recycled into private assets,” McCabe, told delegates. “That is something that we are looking at.”
Sunsuper is one such institutional investor that has already allocated 50 per cent of their international share portfolio to passive and 20 per cent to systematic factor-style strategies. Speaking on the same panel in Sydney, Greg Barnes, head of listed shares at the $69 billion industry fund, said the higher allocation to passive meant they could access beta risk “very effectively, very efficiently and very cheaply.”
“Those sort of savings mean we can then redeploy into more active strategies where we think we can identify skill,” Barnes said.
FTSE Russell survey of asset owners earlier this year found that 78 per cent of respondents globally had either allocated to smart beta strategies or were looking to invest. The survey included 178 respondents that together oversee more than US$5 trillion.
Mercer oversees more than $40 billion in assets for Australian and New Zealand institutional investors. They currently have about 55 per cent deployed into equities.
“We still believe active works where it suits clients as fees are coming down,” said McCabe, who oversees manager selection and portfolio construction for Mercer Funds. “Skill is scarce and difficult to find, but you can find it and build portfolios and you can outperform.”
McCabe joined Mercer at the start of the year as a senior portfolio manager in Dublin. He previously worked for Ireland Strategic Investment Fund, the country’s sovereign wealth fund, as a senior investment manager for four years. He has also worked for Amundi Pioneer and Incisive Capital Management.