University funds weather the global financial crisis, but further diversification recommended

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Mercer

2010-06-09 15:08

서울--(뉴스와이어)--University investment funds in Asia Pacific fared relatively well during the global financial crisis, although further asset allocation to alternative investments could help boost returns, according to a survey by Mercer.

Mercer’s Asia Pacific University Investment Survey is the region’s key benchmarking source for university investment management. The third survey of its kind had 27 participants from institutions and collected data for the year ending 30 June 2009. Previous surveys were conducted in 2005 and 2008.

The 30 June data period enabled comparability to the National Association of College and University Business Officers (NACUBO) survey of US endowments. As such Mercer found that during the global financial crisis, Asia-Pacific endowment funds performed better than their US counterparts. By 30 June 2009, a lower allocation to share markets and hedge funds, together with a bias to the better-performing Asian share market for Asian endowment funds, saw local university funds post a loss of 6.4% for the past year, compared to -18.7% in the US.

The trend also held true over a period of five years, with an average return of 6.9%pa for Asia-Pacific funds and 2.7%pa for the US. Over 10 years, the gap is smaller: 6.3%pa compared to 4.0%pa, however, for the biggest US endowment funds (more than $1billion) the average return is comparable to local funds, at 6.1%pa over a decade.

Mr. Joseph Kim, Head of Mercer’s Investment Consulting business in Korea, said, “The university endowment funds in Asia Pacific have performed relatively well in a challenging market. Those who participated in the survey all have formal investment strategies and sound governance structures, which may have assisted them in dealing with the extremes in capital market volatility experienced in the worst of the crisis.”

The survey also revealed the scale of the investment pool for universities in the region, with 25 respondents responsible for a total pool of US$5.6 billion. While the average fund was US$227.2 million, there was a wide gap between the smallest (less than US$80 million) and the largest, at over US$0.8 billion.

Looking closely at strategic asset allocation for each university shows a wide range of portfolio structures, in some cases reflecting different investment time horizons for the various reserve pools. Three universities favored 100% cash, while another three have around 70% exposure to shares. While some respondents had target exposures to alternative asset classes of around 25%, the average was 10%. There was also a trend of increasing allocations to alternative investments amongst universities.

Mercer argues that some universities appear to be able to benefit from greater diversification.

“Spreading risk across asset classes stands out as an area in which universities in Asia Pacific could further improve their investment strategies. The larger university portfolios are well on their way down this path but those of more modest sizes need to continue to make efforts to diversify their sources of return and risk in their portfolios. Some institutions indicated they are looking to outsource aspects of their investment arrangements as one way to achieve this,” Mr. Kim said.

In fact, the survey shows more than half of respondents use external consultants for advice on policy, strategic asset allocation, manager selection and cash flow allocation. In terms of investment management, only 4 of the 27 respondents manage all investments internally, while the remainder use external managers for part or all of total assets.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management. Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit www.mercer.com.

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