Pension funds should choose specialists, says report

Pie_chartAsset managers that focus on a single or small number of asset classes are better at generating alpha returns for UK pension schemes than managers that invest across a range of assets, so-called balanced managers, according to a 20-year study by Cass Research. UK equity specialists generated an average post-fee alpha return of 35 basis points a year, found the study, while the average balanced manager generated a negative alpha return of -54 basis points. Improved performance can also be achieved by employing multiple managers in place of a single balanced or specialist manager. “Pension funds which switched from employing a single specialist to multiple specialists increased average performance by 131 basis points,” said Professor David Blake, who co-wrote the study. “Switching from single balanced to multiple balanced management led to a 63 basis point increase in performance. In both cases, fees increased by just three basis points.” The performance gains are so great that they more than compensate for problems associated with organising multiple managers, such as “diversification loss”, when multiple managers do not diversify as effectively as a single manager would. Multiple managers are also less good at market-timing strategies. “Our findings suggest that decentralisation actually improves performance sufficiently to compensate for the coordination problems that result,” said Professor Ian Tonks, another co-author. ©2012 funds europe

Executive Interviews

INTERVIEW: Put your money where your mouth is

10 Jun 2016

At Kempen Capital Management, they believe portfolio managers should invest in their own funds. David Stevenson talks to Lars Dijkstra, CIO of the €42 billion manager.

EXECUTIVE INTERVIEW: ‘Volatility is the name of the game’

13 May 2016

Axa Investment Managers chief executive officer, Andrea Rossi, talks to David Stevenson about bringing all his firm’s subsidiaries under one name and the opportunities that a difficult market...


ROUNDTABLE: Beyond the hype

13 Oct 2016

The use of smart beta investing continues to grow. Our panel, made up of both providers and users, discusses what the strategy actually means, how it should be used and the kind of pitfalls that may arise when using this innovative investment technique.

MIFID II ROUNDTABLE: Following the direction of travel

07 Sep 2016

Fund management firms Aberdeen and HSBC Global meet with specialist providers to speak about how the industry is evolving towards MiFID II.