Products February 25, 2015

LGIMA Expands Beyond Corporate DB Plan Market

LGIMA has hired Mark Toomey, senior client portfolio manager, to assist with its expansion.
Reported by

Legal & General Investment Management America, Inc. (LGIMA) will extend distribution of its products to the public defined benefit plan, Taft-Hartley plan and foundation/endowment segments of the institutional investing market.

To assist in this effort, LGIMA has hired Mark Toomey, senior client portfolio manager. Toomey joins from Henderson Capital, where he was head of North American institutional business. He reports directly to Tom Meyers, senior client portfolio manager and head of distribution at LGIMA.

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As part of a broader strategic growth plan, LGIMA officially launched its U.S. index business late last year and is expanding its active fixed-income offerings to include unconstrained bond and global high yield for the U.S. institutional market. Meyers said, “We have seen increased client demand for these products and now is the right time to extend these offerings to the U.S. market.”

Legal & General Investment Management America, Inc. is a Chicago-based registered investment adviser specializing in fixed income and liability driven investment (LDI) strategies for the U.S. institutional market. More information is at www.lgima.com.

Investing February 25, 2015

Plan Sponsors Act Defensively in Making Investment Decisions

Institutional investors are not acting fully on their own expectations when making their asset-allocation decisions, research suggests.
Reported by

Newly published research finds that plan sponsors’ expectations of performance are driven by past performance, investment consultants’ recommendations, and soft factors which they identify in their asset managers, such as having a consistent investment philosophy, clear decisionmaking processes and capable investment professionals.

Researchers Howard Jones, from the Saïd Business School, University of Oxford, and Jose Martinez, from the University of Connecticut School of Business, say the partial dependency of expected performance on past performance and soft factors is not, in itself, irrational. Investors could use such variables as signals of future performance. However, what they did find irrational is that past performance is relied upon when it is uninformative about future performance, and the same was true for soft factors.

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According to the researchers, it seems likely that plan sponsors’ actions are at variance with their own expectations because they feel that past performance and consultants’ recommendations are more defensible explanations for their decisions to their the superiors and other stakeholders. “The policy implications of this are sobering. For, as long as sponsors consider that they will be judged by others who do believe that past performance and consultants’ recommendations are informative about future performance, sponsors will behave as if they do so themselves, even if this is not the case,” the research report says.

Jones and Martinez compared surveys conducted by Greenwich Associates between 1999 and 2011, looking into the judgements by plan sponsors of their asset managers with data provided by eVestment about the returns of institutional U.S. equity asset managers, as well as their assets under management for the same period. The analysis was limited to U.S. long-only active equity asset managers.

The researchers suggest that past performance and consultants’ recommendations are widely followed measures because plan sponsors know that, if they fail, they “fail conventionally.” The researchers conclude that their findings support the theory that plan sponsors implement scapegoat strategies and their decisions are affected by career considerations and their interest in deflecting responsibility.

The research report may be downloaded from here.

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