On the go: Fiduciary managers depended on a strong performance by equity markets to drive returns in 2021, helping most to outperform a key benchmark.
This was despite a majority of managers pursuing more complex multi-asset strategies, new research by XPS Pensions Group found.
Separate research by Barnett Waddingham found that performance by equity markets led to improving funding levels, which in turn enabled the continuation of the recent derisking trend
XPS’s ‘Fiduciary manager review 2022’ found that while equities made up less than 50 per cent of portfolios for most fiduciary managers, the asset class was by far the biggest contributor to managers’ returns across the year.
More complex allocations, such as hedge fund strategies, did little to drive returns.
Seventy per cent of fiduciary managers outperformed the returns of the median average Diversified Growth Fund, while 30 per cent underperformed the benchmark.
There was a gap of 8 per cent between the highest and lowest returning growth portfolios, according to XPS.
André Kerr, head of fiduciary management oversight at XPS Investment, said: “Markets can change quickly. So far this year, the war in Ukraine, in particular, has brought about significant volatility and a fall in equity valuations.
“Given asset allocations seen coming into 2022, therefore portfolios may already have performed very differently over the past four months than in 2021, depending on the fiduciary manager in question.
“We’d encourage trustees not to be complacent and to challenge their managers to ensure that significant value is expected to be delivered by all parts of their portfolios.”
BW’s own research challenged schemes to demand more from their investment managers.
It found that on a risk-adjusted basis, few managers produced “meaningfully better returns than could have been achieved using a relatively simple portfolio outside of fiduciary management”.
BW added: “In such a buoyant market, the question is whether simply meeting targets was good enough, or whether pension schemes should be wanting more from their managers.”
Relative to their fiduciary management competitors, very few managers consistently produce “top-half” performance year on year, its findings revealed.
Peter Daniels, head of FM evaluation at BW, said that given the strong backdrop afforded by equity markets, it is “important for pension funds to look at their managers’ performance through multiple lenses to form a robust view”.
“Looking forward, if the start of 2022 is anything to go by, markets are likely to be in for a rougher ride this year,” he said.
“Inflationary pressures are creating notable challenges in the management of both growth and liability-hedging assets. The ability of managers to navigate this volatility will be key to delivering against their performance targets this year.”
