A survey released this week found passive funds outperformed active funds by 4.7 per cent over the past five years, adding fuel to the fire of the active versus passive management debate.
The research conducted by specialist fiduciary manager Charles Stanley Pan Asset reported that over five years that could mean £3.8m of additional return a year for a corporate scheme of £500m.
Or it could mean a savings of £441m a year for the Local Government Pension Scheme.
It is important to bear in the mind that CSPA does offer a passive fiduciary management service, but the findings are still relevant.
This comes after the government suggested local authority schemes move into a passive collective investment vehicle for their listed assets. It claimed this could save £420m a year for the LGPS.
The research conducted by specialist fiduciary manager Charles Stanley Pan Asset reported that over five years that could mean £3.8m of additional return a year for a corporate scheme of £500m.
Or it could mean a savings of £441m a year for the Local Government Pension Scheme.
It is important to bear in the mind that CSPA does offer a passive fiduciary management service, but the findings are still relevant.
This comes after the government suggested local authority schemes move into a passive collective investment vehicle for their listed assets. It claimed that this could save £420m a year for the LGPS.
Many studies have shown that few active managers beat their benchmark, meaning that in some cases schemes are paying the fees of active management to receive the returns of a passive fund.
According to a report by investment manager SCM Private, released last year, the typical active UK equity fund is 40 per cent identical to the index it is trying to beat. This is compared with 25 per cent in the US.
The research also found investors could have saved £3bn in fees over the past five years by using passive funds.
Despite these apparent negatives, schemes are still using active management. According to the Investment Management Association’s 2014 survey released last week, the amount pension funds have invested in active and passive management has stayed broadly the same.
This year pension funds have about 60 per cent of their portfolio invested with active managers:
Source: IMA
In fact there was a slight increase in those using active management compared with last year. With the research stacking up against active managers, schemes should be considering whether paying more fees is worth the cost to members.
