GLOBAL - A clear majority of pension funds - some 77% - would be willing to invest in certain asset classes without a benchmark, show the results of the latest Global Pensions 100 Panel.
In a recent interview with Global Pensions, Olaf Sleijpen, director, corporate strategy and policy, ABP, stated: "One of the problems with asset managers is they are appraised against benchmarks and these benchmarks are usually traditional. If you want to do something innovative, which nobody is doing, the incentives for the asset manager to include these investment opportunities in the investment portfolio are not very high."
To get around this problem, ABP has introduced a new asset class into its portfolio, which it has called "innovation" and which will house those non-traditional investments.
The lack of an obvious benchmark for all investments did not faze most members of the Global Pensions 100 Panel.
"Ultimately, adding asset classes is about diversification and paying liabilities, not benchmarking," said one respondent, while another claimed: "For certain absolute return assets it may be appropriate not to have a benchmark."
In general, respondents found ways to benchmark these non-traditional investments. "If no benchmark is available for a particular asset class, I would use the benchmark of the asset class where the funds came from. At least I would know if I improved overall performance," said one panel member.
"There does not need to be benchmarks that contain the new assets a plan is investing in, however, all investments need a benchmark to evaluate the performance," said another.
"This is usually handled using a cash benchmark, i.e. LIBOR plus some sort of premium that the new asset class can potentially deliver."
Yet another panel member stated: "Investing without a benchmark is nothing new. When we started investing in private equity in 1990 there was no satisfactory benchmark (arguably there still isn't). Our solution was to use the opportunity cost benchmark - FTSE All share - which is where the money would otherwise have been invested. We have also, by default, used cash or zero-based benchmarks for other asset classes."
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