Towers Watson has revealed the number of alternative asset mandates awarded by its clients to direct fund managers continued to increase in most asset classes last year.
The number of hedge fund mandates awarded to direct fund managers was nearly three times higher than via fund of funds, which have fallen by two-thirds over the past five years.
At the same time, the number of direct private equity mandates awarded by its clients was nearly four times as many as the number of mandates awarded via fund of fund managers, which have fallen by half over the past five years.
Craig Baker, global head of investment research at Towers Watson, said the past five years had shown how the direct alternative fund managers the company has put into client portfolios can adapt to the changing environment and generate good net-of-fees performances.
'Larger institutional funds are likely to continue to invest directly for most alternative asset classes rather than funds of funds, as investors continue to focus on better fee structures and greater transparency,' he said.
Towers Watson also today highlighted the continued move by investors away from investing in local markets, as they try to diversify their portfolios more globally.
There were half as many UK bond and UK equity searches in 2011 than in 2010, and the company's clients only awarded three UK bond mandates - compared to 28 in 2007. Similarly, the number of manager searches for UK equity managers fell from 12 five years ago to four last year.
At the same time, the number of mandates for US bonds almost doubled last year, and bond mandate selections accounted for $21bn in assets invested last year.
Global mandates were the most popular selections by the Towers Watson clients in terms of equities. They accounted for a third of all equity mandate selections, ahead of US equity and emerging market equity mandates.
Mr Baker said: 'These figures confirm an established trend of investors investing away from local markets, as they seek to diversify their portfolios more globally.'
There was also a 60% increase in the value of assets invested using passive mandates - reaching $16bn last year. 'Indexation and smart beta are playing increasingly important roles in investors' portfolios as many new innovations provide efficient access to markets at lower cost,' Mr Baker said.
'Passive investors can now choose from a range of options to access a number of asset classes, including insurance and emerging market currency, but with the expectation of better risk-adjusted returns.'
Research publishedearlier this month by BlackRock suggested the new Solvency II regulation would prompt insurers to move away from equities and government bonds towards alternative assets.
