UK - Unconstrained mandates would enable fund managers to build better-performing portfolios for pension schemes, Hewitt Bacon & Woodrow claims.
The actuarial firm says its research shows that 70% of fund management firms believe index benchmarking prevents them from backing their best stock ideas. And a massive 82% believe unconstrained mandates would lead to improved portfolio performance.
Fund managers also said they would welcome performance-related fees for unconstrained mandates with 69% believing they would force a closer alignment of the interests of pension funds and their fund managers.
Hewitt investment consultant Kerrin Rosenberg said: “Our research suggests fund managers are consistently frustrated by the restrictions that index benchmarks place on them and their decisions.
“They would welcome a system of performance management that not only tied their remuneration to the interests of the fund but also allowed them to invest in stocks and sectors they believed would lead to better overall portfolio performance.”
But the research also found fund managers were uncertain as to how “unconstrained” mandates should be – with only 54% thinking they should be allowed to invest in any asset class.
Fund managers also thought that trustees would have difficulty in coping with unconstrained benchmarks.
More than three-quarters of fund managers (79%) believe only a minority of trustees have the knowledge and expertise to handle these mandates.
Rosenberg added: “Unconstrained mandates are a perfect opportunity for trustees, fund managers and consultants to work together to develop the sorts of innovative solutions that can truly produce better performance and reduce risk.”
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