Editorial: Undercutting the 'cartel'

Current market conditions – with low-yielding government bonds and rallying equity markets – have somewhat muddied the waters for trustees. But the tide of uncertainty may be turning as more than one speaker said they were optimistic about developed market economies.

Speaking at the conference, Larry Fink, chief executive officer of asset manager BlackRock, questioned whether pension scheme trustees were fully evaluating the impact of longevity on their liabilities.

Illustration by Ben Jennings

Fink also advocated the use of dynamic asset allocation and hedge funds. But he weighed in on the debate about smart beta, arguing that although they have seen increasing use of the strategy in place of active management, he didn’t see the benefit for long-term investors.

There was no shortage of consultants, asset managers and providers at the conference vying for the attention of trustees to help make these decisions.

However, one presentation on the cost of investing may have given pause to intermediaries: in a straw poll of the delegates, more than 70 per cent said they did not get value from consultants and asset managers.

Management fees for alternative assets such as infrastructure and private equity came under fire, with one panellist branding the two-and-20 structure as a “cartel”.

It was suggested schemes vote with their feet and avoid assets with prohibitive fees. “Ultimately, investors need to make a value judgment,” said one panellist. But is not investing truly the only option for schemes?

A consultant said the fee issue was resulting in many large schemes bringing these capabilities in-house to reduce costs and improve outcomes for their members.

Which poses the question of whether smaller schemes should consider joining forces to lobby the industry to reduce costs on those assets they think could be beneficial to their members.

Lisa Botter is deputy editor of Pensions Expert. You can follow her on Twitter @lisa_botter and the team @pensions_expert.