EUROPE - Pension funds are increasingly performing due diligence on exchange traded fund providers and could be the fastest growing client base going forward, said Valérie Baudson, managing director at Amundi ETF.
She said pension funds are joining other institutional investors in inquiring about pricing, the quality of index replication and counterparty risk.
"This is a big move from two years ago. More and more are doing very deep due diligence exactly like they do for other fund managers," she told Global Pensions in London.
Baudson said it is unlikely ETFs will fully replace fund managers in an institutional portfolio, but expects the use of ETFs to rapidly increase as the understanding of how these products work improves. Since 2008, Amundi's pension fund client base has grown at least five-fold, she said.
"I would expect it to be the fastest growing client base," added Baudson.
Baudson said most of the pension funds performing due diligence are domiciled in Switzerland, France, Sweden and the Netherlands.
There are three main drivers behind their interest in ETFs, she said. Pension funds have shown interest in using ETFs to diversify their portfolios into non-core assets like commodities, real estate or emerging markets. Others will use it to gain temporary exposure to an asset class during an asset management change, while still others will use it within their opportunistic buckets to gain quick exposure to an attractive market opportunity.
Her comments echo those of a Greenwich Associates study last year that said US institutions have similar motives behind their use of ETF - namely to make tactical adjustments or to gain access to ‘satellite' investments in a core-satellite approach. (Global Pensions; 12 April 2010)
Pension funds have historically used fund managers to gain passive exposure to an index. But schemes are looking to be more nimble with their investments at the same time as the proliferation of ETFs in Europe is increasing.
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The cross industry guaranteed minimum pension (GMP) equalisation working group has formed five sub-committees to each work on a key component of the guidance.
KAS Bank has launched an end-to-end cost transparency solution for defined contribution (DC) schemes to assist in the delivery of chair's statements.