GLOBAL - Pension funds with in-house investment management may have suffered more during recent market disarray than those schemes using external managers, research by leading industry figures has suggested.
Erik van Dijk, partner and CIO at Netherlands-based Compendeon Pension and Investment Management, researched GTAA and risk with Nobel Prize laureate and industry heavyweight Harry Markowitz.
Van Dijk said: "The pattern of financial integration and ongoing 'professionalisation' of financial markets has led to a far larger spectrum of products available to investors."
He warned by not being up to speed on these matters, investors would be exposed to greater risks.
"When pension plans opt for [the] internal management of assets, they have to build an expertise base that will be more demanding and complicated to get from year to year, since the aforementioned patterns will continue," van Dijk concluded.
Van Dijk thought the future looked bright for fiduciary management, which would enable pension funds to build up a knowledge base themselves.
He commented: "I believe it simply because outsourcing by non-specialists to specialists makes sense in a growing number of industries."
Diane Garrick, investment strategist, Invesco, said: "During periods of low volatility, internally managed funds would probably be okay as returns are pretty consistent and predictable."
Garrick continued: "However, when markets are more volatile, management fees should become a secondary concern as risk management takes priority and higher levels of expertise come at a cost."
Van Dijk agreed, adding that financial markets were becoming a more complicated playing field than in previous years.
He cited the growing adoption of emerging markets into the mainstream investment universe, the growth and development of which would have knock-on effects on other asset classes.
Garrick concluded if those closest to the Wall Street action had lost out over the past months, it would be a pretty safe bet internally managed retirement funds would have suffered too.
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