Study Highlights Plight of Long-only Fund Managers

The results of Greenwich Associates 2006 European Fixed-Income Investors Study suggest that, as Europe’s fixed-income dealers devote more resources and attention to hedge fund clients, traditional long-only fund managers risk losing out on research, liquidity and other valuable sell-side services. Many of the institutions participating in the research expressed uneasiness about what they perceive to be a troubling situation. European institutions are under considerable pressure to generate robust investment returns to keep pace with mounting pension liabilities or other business demands. However, mark-to-market accounting rules and other regulatory issues are providing new incentives for institutions to maintain relatively high allocations to fixed income, as opposed to higher yielding but more volatile equities. At the same time, the flat yield curve and the relatively low interest-rate environment have made it tough to make money in fixed income. As a result of these pressures, institutions are being prompted to move into structured fixed-income products, high yield, emerging markets or other asset classes that promise greater returns, and of course, greater risks.

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