Demand for fiduciary management by UK pension schemes has grown hugely over the past five years as pressures on trustees have increased.
Fiduciary management aims to provide a solution which enables trustees to execute their long term strategies efficiently, and target better outcomes, by delegating responsibility of investment decision-making and implementation to a specialist third party provider. Fiduciary management provides the ability to react quickly to changes in market conditions and capture opportunities, without the need to wait for quarterly trustee meetings or trustee education.
Aon Hewitt carries out an annual survey on fiduciary management which seeks to analyse the developing trends within the industry. The 2014 survey was recently published and incorporates data from over 350 responses, with around 85% from pension scheme representatives such as trustees and pensions managers.
The survey has highlighted four key areas of particular interest.
1. Vote of confidence – 99% satisfaction
Fiduciary management gets a resounding vote of confidence from schemes using this type of solution. 99% say their overall experience is excellent, good or satisfactory, 98% say the same about client service and 97% say the same about the impact on the funding level.
2. Fiduciary management continues to grow
Take up rates amongst survey respondents have doubled from 18% to 37% since 2011. Large schemes are more likely to have a partial fiduciary solution (whereby a provider is appointed to manage a proportion of the scheme’s assets) and smaller schemes are more likely to have a full fiduciary mandate (where all of the scheme’s assets are managed by the provider).
3. Less time, more complexity, driving growth
Trustees are facing increasing complexity – from increased use of dynamic de-risking frameworks, more bespoke investments and exposure to complex investments and tools such as hedge funds and liability-driven investments. Coupled with the lack of trustee time available to spend on investment issues, this is fuelling the growth in fiduciary management.
4. Expertise is key
The investment expertise that fiduciary providers bring to portfolios remains the key appeal of fiduciary management. Fiduciary managers use their expert knowledge and time, with parameters set by trustees, to deliver a range of benefits including nimbleness of decision making and increased diversification.
Overall, the survey gives evidence of significant growth in fiduciary management, with high levels of satisfaction from those who have adopted this type of approach. Drivers, including a lack of trustee time and limited expertise amongst sponsors and trustee boards, have stoked this growth as investment options grow more complex and implementation of opportunities more difficult in fast-moving markets.