U.S. Institutional Markets Neared $19T in 2013

Robust equity market returns fueled a 10.7% asset growth across U.S. institutional investing channels during 2013, according to an analysis from Cerulli Associates.

The strong growth pushed total institutional assets to $18.7 trillion. Cerulli notes that the growth or decline of U.S. institutional markets depends primarily on investment returns, followed by net flows.

“After a strong year in equities in 2013, some asset managers began 2014 by taking risk off the table and rebalancing out of equities and into fixed income,” explains Susana Schroeder, senior analyst at Cerulli. “Others are seeking lower-cost products.”

As of mid-2014, global unconstrained fixed income is leading year-to-date net flows. At the same time, two passive categories, global passive equity and EAFE (Europe, Australia, Far East) passive equity, have pushed into the top-10 net flow list. United States passive S&P 500 equity is leading as of the midpoint of 2014, Cerulli says, while U.S. large cap value equity and U.S. core plus fixed income round out the second and third spots.

These results are from Cerulli’s recent report, “Institutional Markets 2014: Opportunities in a Crowded Market.” The research focuses on U.S. institutional distribution and product trends within public and private pensions, endowments and foundations, and insurance general accounts. Topics include market sizing, segmentation, and asset projections for the central institutional channels, Cerulli says.

Schroeder suggests interest rates have maintained low levels year-to-date, placing pressure on funding levels and raising the value of pension obligations. Because of this, Cerulli’s research shows retirement plan advisers, consultants and asset managers all agree that the demand for pension de-risking services is still relatively high and can be expected to grow. (See “Adviser Sees Favorable Landscape for PRT Advice.”)

“Pensions are looking to preserve funding levels after 2013, and consultants are advising them to start on the de-risking path now in order to lock in low interest rates—if not for all assets, then for at least a portion of them,” Schroeder explains. “Opportunities exist for [service providers] with strong fixed-income departments as pensions move forward on the liability-driven investing glide path.”

More information about obtaining Cerulli reports is available here.