YMCA launches derisking strategy to improve funding level

There has been an increase in the number fiduciary manager mandates being awarded since 2010, according to data from Financial Times service MandateWire.

Research by Russell Investments also found 78 per cent of institutional investors will increase the amount they delegate in the next 12 months.

The £75m YCMA plan, which is now fully closed, decided its previous strategy was not performing adequately and has opted to delegate the management of its new approach to consultancy Mercer.

Paul Smillie, company secretary at the YMCA Pension Plan, said appointing one company to oversee its investments had its cost advantages.

“We didn’t do a full beauty parade, but we did look at other options and we considered the pros and cons of both Mercer acting as the investment advisor to the plan, and then another [aspect of] company looking after the investments themselves,” he said.

Smillie added: “We felt that there were economies of scale in going down this route.”

Mercer, which was already investment advisor to YMCA's multi-employer plan, will look after the majority of the scheme’s assets.

The remaining 3 per cent - a property allocation - it currently does not oversee will remain with Schroders. But there is a possibility this could be brought under Mercer’s management eventually.

Performance review

The strategy is now fully in place and will be monitored by the plan’s investment sub committee, which will be able to view the investment performance on a daily basis online.

“It is now a case of monitoring that in line with our strategy and seeing how it goes, and regulator meetings with Mercer to review where it’s working and if it’s not working why it’s not – hopefully the latter won’t be the case,” said Smillie.

Lack of resources means fiduciary management is most popular among small schemes, said Marcelo Dellavedova, business development manager at MN Services in the UK.

The financial crisis was a wake-up call for trustees that they need a governance structure and need to be efficient when the markets offer the opportunity to derisk or hedge, he added.

"Ultimately, the decision [to implement fiduciary management] comes down to funding level," Dellavedova said. Trustees are asking questions around how we get back to full funding and what resources we will need and what would that investment strategy look like and the answers are instigating the move to delegation, he said.

A trend in the nascent UK fiduciary management market has been appointments without tender.

Dellavedova said: “From our point of view, appointing a fiduciary manager should independent, with a robust due diligence process. Trustees would be better off if they spent time opening up to the market, finding out the different providers and what their offerings are like."

“But I think that is opening up…the market is maturing,” he added.