XPS review reveals 'wide divergence' in 2023 fiduciary investment performance

The firm's survey of 20 growth portfolios managed by 17 fiduciary managers and representing over £480bn of pension scheme assets over 2023 found that, although all portfolios made positive returns, there was a gap of 12.9 percentage points between the highest (+13.4%) and lowest-performing (+0.5%) portfolios.

It said only one fiduciary manager outperformed a traditional 60/40 portfolio across the year, and some underperformed their targets by three percentage points or more.

XPS said there was also a "clear link" to illiquid allocations and lower absolute returns - noting the portfolios that were most exposed to illiquid assets like infrastructure and real estate were most likely to see lower returns.

It said this was in direct contrast to the experience of fiduciary managers in 2022, when illiquid assets drove higher returns – adding this could be down to continued tail effects from the gilts crisis of late 2022.

The consultant said the variable performance came despite a strong year for markets, in which more uniform returns might be expected as fiduciary managers had the opportunity to benefit from rising listed asset prices. It added the typical global equity portfolio returned 15.7% across the same period.

XPS Pensions Group partner André Kerr said: "It is surprising to see this level of variance in the investment performance of fiduciary managers across 2023, despite it being such a strong year for global markets.

"With the government exploring ways to give pension schemes access to surplus, there are now more options for schemes around their endgame, which may change investment calculations. Regardless, schemes should keep a watchful eye on whether the strategy being employed by their fiduciary manager aligns with their investment goals."

Fiduciary manager and comparator performance

Source: XPS Pensions Group