From the blog: More than half of global public pension funds with assets under management of $10bn (£8bn) or more feel under pressure to cut costs.
This is particularly pertinent to the UK market, where central government is promoting the consolidation of assets within the Local Government Pension Scheme into eight distinct asset pools.
Member funds certainly need to invest adequate resources into understanding the many challenges they face and what needs to be done to meet these
The good news is that various contributing factors, including this pooling initiative, are allowing funds to become stronger than ever before and meet challenges head on with insight and proactivity.
The UK LGPS is growing in size. By becoming bigger and pooling their assets, economies of scale will allow member funds to be better placed to address one of their key goals: cutting costs.
Risk cutters and return hunters
Many are trying to do this at the same time as taking on more risk. Our analysis of 79 global public pension funds identified 17 per cent as ‘risk cutters’ – those reducing their exposure to risk.
But a far greater percentage (30 per cent) were classified as ‘return hunters’ looking to increase their risk profile to generate better returns.
With this in mind, six out of 10 (61 per cent) are also looking to increase their internal risk teams over the next three years.
With all of these changes, there is a growing focus on improving governance models. For example, 61 per cent are looking to adjust the balance of responsibilities between board and management; more than half (51 per cent) are planning to increase the autonomy of their investment functions; and 48 per cent intend to change the process for recruiting new board members.
As they go through this change, member funds certainly need to invest adequate resources into understanding the many challenges they face and what needs to be done to meet these, through the development of clear and robust strategies.
By the time the asset pools’ operational deadline of April 2018 hits, they will be well on the way to being more efficient and transparent than ever before.
Andy Todd is head of UK pensions and banks, asset owner solutions at State Street
