External Equity Managers and the Need for Specialization
Norway’s Government Pension Fund Global (GPFG), the US$ 611 billion sovereign wealth fund in Europe, cut half its assets managed by external managers in 2011. That ratio is expected to remain low in the future and an expectation of smaller mandates. In addition, Norway’s GPFG only uses one external fixed income manager, Blackrock to manage about US$ 500 million in U.S. mortgage-backed securities.
Increasingly, public investors are hiring internal staff in their public equity departments. Large cap equity is being in sourced, thus opportunities lie in small to mid-cap fund managers. Beta strategies are being developed with the assistance of staff and consultants.
For large sovereign investors, there is still a need for specialization whether in regions, sector, or specific strategy. External chief investment officer (CIO) programs and investing directly into fund managers are ways that public investors can increase knowledge flow internally.