UK - Schroder Investment Management has developed a structured overlay service to reduce the "hidden costs" involved in schemes switching from equities to bonds.
The fund manager says that unforeseen costs over and above quoted execution fees occur particularly when selling equity holdings into a falling market over several days.
Its structured overlay service offers a combination of strategies – including derivatives – that will replicate the transition pension funds wish to make, without so many of the risks and at a low cost.
Head of structured investments John McLaughlin said: “Trustees striving to meet their pension fund liabilities and avoid underfunding should be considering structured overlays as an alternative to traditional forms of transitional management.
“Overlays significantly reduce the cost of the transition process, can be implemented swiftly and removed just as efficiently, making them ideal for temporary shifts in asset allocation.”
He added that while many of the financial instruments employed within Schroder’s structured overlay package had been used before, many had not been adopted in transition management.
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