UK - The UK pensions market has adopted a pace of change more radical than that of any other major institutional market in the past 30 years, according to Rodger Smith, consultant at Greenwich Associates.
“While several aspects of the overall change, such as the shift to speciality management, which was stipulated by poor performance of balanced managers and has been underway for three or four years, others such as the move to customised benchmarks will get a hefty boost from the Myners Review,” said Smith.
Between April and May, 2001, Greenwich conducted a series of interviews with 425 officials at the largest UK pension funds. Interview topics included asset allocation, structure of investments, DC plans, compensation, and assessment of managers.
Some of the findings included:
-The use of speciality managers almost doubled in the past three years, from 40% of UK funds employing such managers in 1998 to 75% today. The rise was steep in just the past year, rising from 62% in 2000. Among funds with assets under £500m, usage of speciality managers rose from 35% in 1998 to 70% today. At local authorities, the jump was from 35% to 67%.
-Active domestic investment has dropped from 40% to 33% since 1996, and from 35% to under 33% in this 2000.
-Just 10% of funds expect their active domestic equity allocation to be greater by 2003, while 47% expect it to be lower. Only 6% expect their passive domestic equity proportion to be up in three years, and 39% expect it to be down.
-Over the past five years, fixed-interest investment in UK funds rose by half, from 14% to 21%. From 1998 to the end of 2000, the proportion of total assets invested in international equities climbed from just under 20% to 24%.
-Only 36% of UK funds employ customised benchmarks, as opposed to nearly 50% that use peer- or market-oriented benchmarks.
“The need for customised benchmarks is clearly underscored in the Myners Review,” added Smith.
“Funds should have benchmarks that relate to their specific situation, rather than to a market average or a peer group that probably has a different liability profile.”
Also, among large UK corporations, 39% provide defined contribution (DC) plans, up from 24% in 1998. A further 17% say they plan to add DC plans in the near future.
By Janet Du Chenne
Johnson Controls International has appointed XPS Pensions as investment and actuarial adviser for two of its schemes, following a competitive tender process.
Merseyside Pension Fund has allocated an initial £400m of assets to a smart sustainability fund managed by State Street Global Advisors (SSGA).
This week's top stories included exclusive coverage of The Pensions Regulator's plans to require schemes to use professional trustees.
Buck has launched a solution to help pension schemes equalise guaranteed minimum pensions (GMPs) in a cost effective way with minimum hassle.