Hedge funds have taken somewhat of a battering from local authority schemes, as we have reported over the past couple of weeks.

This week we covered the Oxfordshire County Council Pension Fund ditching its entire 2.2 per cent allocation to the asset class. While a relatively small allocation, it represented £33m of its £1.5bn of assets.

The Dorset County Council Pension Fund also decided to drop its 6 per cent allocation to hedge funds. Lack of transparency and high fees were cited by the schemes as reasons why hedge funds had been relegated to the cutting room floor.

The FT had also reported that the London Pensions Fund Authority had pulled all its holdings in Brevan Howard, the world’s largest hedge fund, over transparency issues. The scheme reportedly made a request to the hedge fund to redeem its £61m in April of last year. 

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The Law Commission yesterday published its much anticipated report clarifying the fiduciary duties of trustees, and has called upon the Pensions Regulator to provide further guidance on the subject.

Last year, the commission issued a consultation paper to clarify, among other things, “how far those that invest on behalf of others may take into account factors such as social and environmental impact and ethical standards”. The answer is: to a point.

We have reported recently on schemes such as Strathclyde and the West Midlands that have made social impact investments, which may have put them in jeopardy of breaking their primary fiduciary duty of maximising returns.

The commission concluded that due to the long-term nature of the liabilities of pension schemes, trustees do not have to “maximise returns” in the short term at the expense of risks over the long term.

The report stated trustees “should take into account factors which are financially material to the performance of an investment”. And where it is thought ethical or environmental, social or governance issues are “financially material” they should be taken into account. 

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Around one trustee on each board feels their relationship with the scheme sponsor needs to be improved, according to a survey of 100 scheme representatives, conducted as fresh regulation seeks to strengthen this bond.

Pension schemes compelled last year to derisk at historically low yields quadrupled the previous year’s gilt purchases, according to official data that have left investment experts surprised.

The Pensions Regulator last week released its annual record-keeping survey, which once again showed smaller schemes were falling behind their larger counterparts.

The regulator's target for common data is 100 per cent for records created after June 2010, and 95 per cent for records created before that time. These are items that are used by all schemes to uniquely identify members. 

The watchdog's survey found 33 per cent of small schemes have a common data score of 95 per cent or higher, compared with 64 per cent for large schemes. 

Even though more schemes now have a common data score of 95 per cent or higher, the proportion of schemes not measuring their common data has not decreased significantly. 

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Apparently so, according to a report released this week by Create Research and Principal Global Investors. Emerging markets have been plagued with underperformance for years and were hit especially hard when the US Federal Reserve announced its plans to begin tapering its quantitative easing programme. 

The report, which surveyed 704 pension plans, sovereign wealth funds, consultants and asset managers from across the world, showed a large negative shift in investor sentiment between the 2012 and 2014 surveys.

This year only 20 per cent of respondents said they remained "believers" in emerging markets, compared with 38 per cent in 2012.

And the proportion of respondents saying it is time to get out has doubled, with 12 per cent listing themselves as "deserters". 

The report also showed the way in which investors are allocating their assets has changed, with 51 per cent saying they use EM bonds for opportunistic investing and 48 per cent saying the same for EM equities. This is up from 15 per cent and 30 per cent respectively in 2012.

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The Pensions Regulator this week released a new code of practice for defined benefit schemes, focusing on trustees and employers working collaboratively on scheme funding.

Consumer group Which? has struck the latest blow against pensions providers wishing to deliver the guidance guarantee unveiled in this year’s Budget.

A survey by the consumer group found 65 per cent of people think advice given by pension providers would be biased; this increased to 76 per cent for those aged between 55 and 64.

Another survey by Which? found that while seven in 10 respondents said people should be able to do what they like with their pension savings, 76 per cent said they would need advice about what to do with that pension when they retire.

The Association of British Insurers had dealt a blow to some providers' ambitions with reported comments that providers should not deliver guidance until there is greater clarity on it.

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In numbers that will be pleasing reading for the pensions minister, Scottish Widows’ Retirement Report 2014 has found workers are saving more of their earnings for retirement. The average contribution for employees of companies with more than 250 staff is now 11.6 per cent. 

The report found that on average British workers were contributing 10.2 per cent of their earnings to saving for retirement. This is an increase from 9.1 per cent last year and 8.9 per cent in 2012.

“In the private sector, the average savings ratio has increased from 9.6 per cent to 11.1 per cent but has reduced from 8.9 per cent to 8.7 per cent in the public sector,” the Scottish Widows’ report stated.

Private sector employers with more than 250 employees saw the proportion of earnings saved by employees increase to 11.6 per cent from 9.7 per cent. 

Industry observers have largely attributed the rise in savings to to auto-enrolment, but warned of the shortfall for whom the reform is not hitting – which Labour has pledged to reduce by 1.5m people. 

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The Pensions Regulator has today released a defined benefit code of practice that emphasises the importance of trustees and employers working together as a big happy family.

The regulator said the code urges trustees and employers to consider the impact scheme funding proposals may have on the employer’s plans for sustainable business growth.

In a statement, Stephen Soper, interim chief executive at the regulator, said: “In the vast majority of circumstances, trustees and employers should be able to agree funding plans that both benefit the business and strengthen the scheme’s long-term security – but this can only be achieved by employers and trustees working openly and collaboratively.”

Trustees will now be expected to take an integrated approach to risk management. “Trustees should take into account their views on market conditions and the outlook for future asset returns and the associated uncertainty of those returns and what this means for their scheme and employer(s),” the code stated.

This is expected to be in place by their 2014 valuations.

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