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Holding Periods for Institutional Asset Owners

Allocator Intel • 11 May 2022
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Forbearance in Institutional Investment Management

Institutional Investor Allocator Intel has partnered with one of Europe's most sophisticated asset owner fund selector, and two leading academics, to examine the differences between institutional asset owners in how patient they are with underperforming managers. Over 200 institutional investors were surveyed from 22 countries representing over $4.1 trillion in AUM. Responses regarding their practices in delegating assets to investment managers were collected.

Key Findings

The survey reveals several aspects of the institutional investment process that seem surprising. First, holding periods for the average asset manager are quite long, frequently longer than 5 years. Second, institutions are surprisingly tolerant of underperformance. This forbearance is related to sophistication and tracking error tolerance, but not to the locus of control. Finally, North American institutions are relatively more patient than their European or rest of the world counterparts and financial institutions are less tolerant of underperformance than other types of institutions.

Long Holding Periods

Holding periods for investment managers are surprisingly long: 68%, 65%, and 42% of respondents report average holding periods of longer than 5 years for public equity, fixed income and hedge funds, respectively.


Poor Performance 

Asset managers are terminated for a variety of reasons, including taking on too much or too little risk, as well as organizational changes at the investment manager or institutional investor. But poor performance is by far the dominant cause.

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Tolerance for Underperformance 

There is also surprising tolerance for underperformance: 66%, 56%, and 50% of respondents report a willingness to tolerate underperformance for 3 years or longer in public equity, fixed income, and hedge funds, respectively. Cross-sectional variation in forbearance is related to institution sophistication and tracking error tolerance.

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American Institutions 

Contrary to popular narratives, North American institutions are unexpectedly patient relative to their counterparts from Europe and the rest of the world.

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