UK - Liability-driven mandates could become part of mainstream investment within a year, Merrill Lynch Investment Managers claims.
MLIM said that while only a handful of schemes had moved to liability mandates, they represented a broad spectrum of the industry. And it believes liability-driven investing will become mainstream for schemes within the next 12-24 months.
The range of liability mandates varies too, with some schemes using swaps to try to match cashflows for the next 100 years, while others have set their fund managers’ performance targets of Retail Price Index-plus five, or exceeding bond returns by at least three percentage points.
MLIM head of institutional business Andrew Dyson said: “I think liability mandates will become mainstream over the next 12-24 months. At what point it will become the dominant form of mandate is open to question but it will become mainstream quite quickly. It fits intuitively, it makes sense to people.”
Earlier this year, research from the Investment Management Association found that fund managers believe their pension fund clients will slash their equity weightings to increase their bond allocations and move to liability-driven mandates.
It believes the 56% equity weightings held by schemes will fall sharply, to levels similar to life funds, where the average weighting is 31%.
Bond investments currently make up 33% of pension fund portfolios and the 113 IMA members surveyed expect this to increase at the expense of equities.
The Pension Protection Fund (PPF) is consulting on proposals to charge a "risk reflective" levy for commercial defined benefit (DB) consolidation vehicles.
The funding gap across FTSE 350 schemes could be slashed by as much as £275bn if schemes look beyond traditional ways of creating value. Victoria Ticha examines how
There will be "many flavours" of defined benefit (DB) consolidators but consolidation will only be the right answer for a minority of schemes, Alan Rubenstein says.
Work and Pensions Committee (WPC) chairman Frank Field has questioned the regulator on what lessons it can learn from the experience of the Kodak Pension Plan No.2 (KPP2).