Innovation and ideas are “key” to pension fund returns

Pension funds that can innovate or adopt new ideas quickly are likely to see the largest growth in assets, says Roger Urwin, a leading pensions investment expert, as he published research today showing a fall in fund values for the first time since the financial crisis.

Annual research by Willis Towers Watson, an investment consultancy where Urwin is global head of investment content, shows the value of assets in the world’s 300 largest funds fell by over 3% in 2015 to US$14.8 trillion (€13.3 trillion).

Only hybrid plan assets grew, by almost 14%, while all other fund types declined: defined benefit -5%; defined contribution over -2%; and government reserve funds -0.3%.

Urwin said it had become clear that good investment governance is the “key determinant” in producing the competitive edge necessary to fund schemes and pay benefits securely.

“There has been a fair amount of movement in the ranking in the past five years with winners likely being determined by having fully diversified portfolios that perform well in times of stress and a focus on total rather than relative returns.

“Another differentiator of leader funds is their ability to innovate or be an early adopter; critical in such a persistently low-growth environment.”

Urwin added that an area where investors have embraced this to their benefit is in thinking innovatively about betas across all possible return drivers in their portfolios and balancing this with appropriate focus on capturing alpha.

The ‘P&I / Willis Towers Watson Global 300’ showed that European pension funds had the second highest (4%) compound growth rate after the US (6%). Asia had 1%.

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