Nearly two thirds of figures in the European investment industry believe that greater expectation from clients will compel fund managers to increase levels of shareholder engagement, according to Penrose Financial's second annual survey on the future of the pensions & investment industry. The findings follow the recent publication of the Financial Reporting Council's UK Stewardship Code, urging large shareholders to actively monitor companies and seek corporate change when necessary.

The survey, which covered a wide range of topical investment and pensions issues, found that 44% of respondents believed environmental factors posed a significant risk to portfolios and should be a key consideration when making investment decisions. This follows recent high-profile events, notably the BP oil spill and its impact on share values. However one in four still felt that environmental factors should be incorporated into investment strategies due to significant opportunities within the sector and potential for outperformance.

Of the over 100 senior figures surveyed, fewer than 10% believed traditional long-only and passive investment providers would flourish, while almost 80% expected multi-strategy and specialist boutique managers to emerge as the most successful over the coming 18 months. A significant proportion (41%) felt that traditional investment consultants will become less dominant over the next 12 months, with investors turning increasingly to fiduciary managers or going directly to asset managers.
Over the past year, the proportion of respondents who believe the National Employment Savings Trust would fail to boost saving amongst low-middle income groups increased significantly, from 57% in 2009 to 76% this year. One in five questioned whether the initiative would actually go ahead, and less than 2% perceive the scheme as affordable and practical.

Commenting on the survey’s findings, Sally Todd, Managing Partner of Penrose Financial said: "The survey demonstrates that the pensions and investment industry is rapidly evolving, as investors move increasingly away from traditional asset allocation strategies and into alternative offerings. With shareholder engagement and environmental issues rising swiftly up the industry agenda, today's findings offer a telling insight into views on these key areas. The idea of large investors doing more long-term good with their holdings under an enlightened sustainability banner is compelling.

"The research also highlights growing concerns about the outlook for NEST, with many respondents seeing the vehicle as a sub-optimal solution."

Other highlights of the survey include:

• Multi-asset (37%) and alternatives (27%), particularly unleveraged absolute return funds as opposed to traditional hedge funds, were seen as the asset classes that will attract the highest inflows from institutional and professional investors over the next few years.
  
• Epitomising the move to multi-asset and alternative investments, nearly half of respondents (46.2%) felt that flexibility was the most sought-after characteristic for a DC default fund, suggesting a lack of desirability in indices-based funds and those vulnerable to market volatility.
  
• The majority (65.7%) suggested 5-20% is a suitable allocation to emerging markets over the next 12 months, with a view to increasing this percentage as stability returns
  
• 20% feel that the risk of economies in decline being forced to leave the Eurozone is a realistic prospect.
  
• One third of respondents believe that the replacement of DB schemes in the public sector by DC schemes should be recommended by the Hutton Commission on public sector pension funding