UK - The continuing trend among pension funds towards separating index-tracking from absolute returns is a challenge for some active managers, the UK's Investment Management Association (IMA) found.

As pension funds expect to pay less for returns which are reproducing the index, known as beta, asset managers have to provide real return or alpha for which institutional investors are  prepared to pay higher fees, suggests a study by the UK investment industry trade association.

"You have a whole slug of assets that goes to indexation, and the part that goes to active management has shrunk," an asset manager commented in the IMA's 2006 Asset Manager survey.

"Everyone says that the fees are a bit higher, but if your assets under management have gone down, it's not a great help. What we are seeing is a collapse of the institutional fee cake."

Another asset manager commented it even expects beta to become "increasingly cheap," going further to suggest it "in fact may be free".

On the active side, hedge fund strategies are beginning to get even more integrated into equity management. "The distinction between 'traditional' managers and hedge funds looks increasingly blurred," the IMA said.

An asset manager commented whereas a few years back a return of 2% above benchmark was defined as 'high alpha' this threshold has been raised to 3% and above or - increasingly - unconstrained.

The most pronounced change compared to last year's survey is the leap in the number of specialist mandates as they represented around 60% of mandates last year, worth a total of £3.1trn (€4.6trn) assets , but have now increased to 84%.

However, the IMA also identified 'new balanced' products are a breed of investment offering on the rise, such as liability driven investment (LDI) products or 'targeted return' strategies.

Elsewhere, R&M Surveys has crowned HSBC as the best custodian in the UK asset management industry for a third consecutive year.

State Street dropped from second place last year to fifth in the 2007 survey of 120 investment managers, while Mellon leaped from fourth to second place.

Surprisingly, according to R&M, "BNP Paribas failed to secure enough responses to qualify for inclusion, and their absence was subsequently filled by Northern Trust's first appearance in the results".

The survey concentrates on the provision of fund accounting and administration services to the UK investment management market.

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