$420B in Retirement Plan, Endowment Assets Expected to Change Hands in 2010

Retirement plans, endowments, foundations and other large investors in North America will turn over $420 billion in assets to new investment advisors, according to the "2010 Consultant Search Forecast" survey of 70 leading investment consulting firms with more than $7 trillion in assets under management, conducted by eVestment Alliance and Casey, Quirk & Associates. The change will be driven by sponsors looking for strong capabilities in developed and emerging markets stocks, hedge funds, hedge funds-of-funds and inflation-protected strategies.

Last year, consultants placed approximately $378 billion with new investment managers, their primary concerns being international and global equities, domestic stocks and core/core-plus fixed income.

"As many in the institutional investment industry are expressing a sigh of relief after a turbulent 2009, [we are now seeing] the beginning of a post-crisis thaw in strategy-driven search activity," said eVestment Principal and founder Heath Wilson. "Another key finding in this year's consultant survey is the apparent dissatisfaction with incumbent managers, particularly in traditional asset classes," added Yariv Itah, a partner with Casey Quick. "This will increase pressure on investment management organizations to think strategically about their strengths and weaknesses and to effectively manage their consultant and client relationships."

$1 Million Not Enough For Retirement, RIAs Claim

While the average American family believes $1 million is the gold standard for retirement savings, a new survey by Scottrade Advisor Services finds that most independent advisers think this number is way off. Seventy-one percent of 226 RIAs polled said that the average family needs to save double or triple that amount.

The recommended investment goals for Generation Y (ages 18-26) are the greatest. More than three-quarters (77%) of advisers recommend a goal of at least $2 million, with 40% recommending more than $3 million. Generation X (ages 27-42) should save between $2 million and $3 million, according to 46% of RIAs surveyed.

Thirty-five percent of advisers polled feel that Boomers (ages 46-64) need between $2 million and $3 million to retire, with another 13% believing that they should have more than $3 million.

Seniors (ages 65+) are the only generation for whom $1 million might be sufficient savings, with 44% of RIAs saying $500,000 to $1.5 million is a sufficient target.

Sheryl Garrett, the founder of The Garret Planning Network, an international network of fee-only advisers, said that younger people often have an "illusion of wealth," in which $1 million sounds like an endless supply of money, but once you take a million dollars and factor in that an 18-year-old might not retire for another 49 years, a conservative annual inflation rate of 3% would place that $1 million at something closer to $4.3 million.

Frugal the New Normal, Schwab Survey Shows

Wealthy investors will continue to be careful with their money, Charles Schwab found in a survey of 1,100 independent advisers with more than $252 billion in assets under management.

Thirty-two percent said "frugal spending habits" will be the new consumer behavior with the greatest staying power. This jibes with similar reports from Booz (see MME, Feb. 24, 2010, "Consumers Can't Shake Frugality, Booz Survey Shows") and Allianz (see MME, Feb. 10, 2010, "New 6% Savings Rate to Funnel $800 Billion to Investments Annually").

In the Schwab survey, the emphasis on frugality was followed by a "focus on saving money," cited by 26% of the advisers. All told, 59% of advisers expect consumer savings to increase in the next six months, and 62% said their clients are more focused on paying off debt.

That said, 55% of the advisers believe the current national savings rate of 4.8% should be at least 9%.

"Advisers tell us that the pain of the last 18 months may have been the catalyst for some positive behavioral changes regarding saving and personal financial responsibility," said Bernie Clark, senior vice president and head of Schwab.

Perhaps because of their clients' new sensitivity to saving, only 57% of advisers said achieving client goals will be "very or somewhat difficult," down significantly from 84% who were pessimistic about this a year ago. Also, 31% of advisers said their clients need reassurance, down from 49%, and 65% expect the S&P 500 to rise in the next six months.

However, Clark urges advisers to continue to be conscientious about working with their clients: "We know from this study that advisers have spent considerable time over the past year communicating with their clients, but while many advisers say they are in more of a 'back-to-business' mode, there is clearly a continuing need for advisers to play a role as educators for their clients."

72% of Workers Age 60+ Putting Off Retirement

A troubling 72% of workers age 60 or older are putting off retirement because they don't have enough funds, according to a survey of 700 people Harris Interactive conducted on behalf of CareerBuilder.

The situation appears worse for women, 76% of whom are delaying retiring, than for men, with only 68% of them putting off leaving the workforce. In addition, 50% of the respondents want to keep their jobs because of health insurance and additional benefits.

"The economy continues to cast doubt in the minds of mature workers [about] their retirement plans," said Jason Ferrara, a senior adviser at CareerBuilder. "Twenty-seven percent of hiring managers were approached about postponing retirements last year and were open to retaining mature workers. The key is to let your employer know sooner than later that you would like to put off your plans to leave."

Hedge Fund Assets Grew 62% in '09 to $1.96 Trillion

Hedge fund assets grew last year to $1.96 trillion, levels not seen since the pre-crisis days of 2007, according to Hennessee Group. The jump in assets by $751 billion to $1.96 trillion was a 62% increase for the year.

"Despite many of the well-publicized challenges the industry faced entering 2009, particularly after the Madoff scandal, the industry was able to persevere and experienced 37% in new asset growth over the full year period," said Charles Gradante, co-founder of Hennessee Group. "New assets are coming from the traditional long-only side; in part due to the horrendous losses in 2008 coupled with an improved comfort level with hedge funds for those institutions with 10 or more years experience in hedge funds." According to preliminary data, hedge funds had net inflows of $448 billion in 2009, the largest inflow of assets in the hedge fund history, according to Hennessee Group, which tracks performance of more than 1,000 hedge funds across strategies.

In 2008, a year that saw the failure of Lehman Brothers and Bear Stearns, hedge fund assets declined by $399 billion or 20%.

Looking back to 2009, $302 billion, or 25% of the jump in assets, was related to positive performance. The Hennessee Hedge Fund Index-a measure of performance among hedge funds-jumped 24.6% in 2009, the best annual gain in a decade.

When it comes to investment specialty, arbitrage and event driven funds' assets were up approximately 44% in 2009, while long/short equity funds' assets increased 32%.

Madoff 401(k) Funds Being Used to Terminate Plan

As if working for Bernard L. Madoff Investment Securities wasn't stigma enough, benefits consulting firm Hooker and Holcombe is using 6% of the money in the bankrupt company's 401(k) plan to cover the $100,000 cost of winding it down. Across the board, every account in the plan is being deducted by that percent.

"That's what we're all incensed about," Carolyn Maloney-Hastillo, who worked for Madoff for a decade, told The Hartford Courant. "That's not right. For me, that's $2,000 gone." Furthermore, the value of the Madoff plan included company stock, and even though that is now worthless, it has inflated Hooker and Holcombe's fees, attorneys representing the employees argue.

Attorney General Richard Blumenthal is investigating the West Hartford., Conn., company, even though the practice of tapping into 401(k) assets to terminate a plan is perfectly legal. "Certainly, our hope is the company will do more than comply with the minimum with the law," the attorney general said.

(c) 2010 Money Management Executive and SourceMedia, Inc. All rights reserved.

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