The asset management industry will experience continued polarisation in 2009, with bigger firms getting bigger and smaller firms reducing in number, according to Hymans Robertson, the independent benefits and investment consultant. In its annual survey of UK asset managers, Market Briefing, the firm forecasts a reversal of the last three years’ steady rise in headcount at investment management houses as redundancies begin to affect front office operations. Hymans Robertson remains bullish on active management as an investment strategy, pointing out that despite dismal underperformance for many active managers, several delivered strong relative returns in 2008.

Stephen Birch, Head of Manager Research at Hymans Robertson commented “Many active managers depend on quantitative models, which use historic pricing and volatility to predict future risk. These models were a hurdle to sizing market risk accurately last year. The question now for clients and consultants is whether it is time to exit active management in favour of passive management. We would argue that the case for a recovery in active management performance is strong. Active managers will tend to find greater opportunities to add value when markets are inefficient, irrational and driven by sentiment, rather than by fundamentals.”

John Dickson, Head of Investment Consultancy at Hymans Robertson said “As expected, asset allocation continued to be dominated by bonds in 2008. Property allocation has remained static, while the increased allocation to alternatives in past years has now stalled, but we expect this to resume once market conditions normalise. Although overall equity holdings fell, this was mainly due to market movements. Meanwhile, our annual survey shows that pension schemes are typically reducing their UK equity holdings in order to fund increased overseas equity exposure, ensuing greater diversification.”

To view the Market Briefing please click here