A suite of liability driven investment (LDI) indices has been launched by STOXX and RiskFirst to aid trustees and consultants select, monitor and challenge managers.
The offering, which will be available as of 23 April, is aimed at helping defined benefit (DB) schemes address some of the challenges they face by providing an independent benchmark and investable building blocks for LDI. The indices combine STOXX's real-time fixed-income index calculation capabilities with a set of data provided by RiskFirst.
RiskFirst CEO Matthew Seymour called the indices a "major leap forward" and said they will provide "improved governance and increased accuracy through a cost-efficient solution."
According to the two providers, the three main challenges in the LDI market are governance, methodology and portfolio construction. They argue there is no transparent and objective way for trustees to determine how their LDI managers are performing for the scheme relative to competitors, and that schemes have to rely on benchmarks developed by the asset manager - meaning there is no independent oversight.
The UK-based firm's chief strategy officer Matthew Bale added: "The UK LDI market is almost £1trn. It's crazy to think that such a big market doesn't have any independent benchmarks or indices to judge performance on.
"What we have provided is a framework by which you can bring proper indices and the right governance structure to the UK LDI market", he continued. "Not a lot is going to change from the perspective of the consultants and asset managers, because it's really about delivering the right governance structure to the pension plan. Pension trustees will start seeing more comparability of LDI, and manager performance should become more understandable and more standardised."
STOXX director of global asset owners Muhammad Ashar commented some trustees are hesitant in going down the LDI route because the framework is very vague, and they cannot replicate the good model that they see in equities.
"Therefore, through this product, not only will the existing LDI mandate become well governed, but more trustees will be encouraged to adopt LDI," he said.
Nearly every trustee is confident of the next stage in their scheme’s strategy, despite almost an equal number being forced to consider replacing plans within the prior 12 months, according to research by Barnett Waddingham.
Companies could be overstating their pension liabilities by up to £60bn due to their life expectancy assumptions, according to XPS Pensions Group.
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment said last week.
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.