Do-it-yourself pension funds, not for the faint of heart

December 8, 2014 admin

injured fingers w hammerThere are those of us who dream of remodeling our homes, but even just finding the right people for the job can seem too daunting and nothing ever comes of it. Others are willing to take on the do-it-yourself approach, eager to save money in the long run. But DIY can be fraught with unforeseen consequences far greater than an accidental hammer hit to one’s thumb.

Now think about pension fund executives globally. They are tasked with investing the assets of current employees to pay for the needs of future retirees. As pension fund liabilities continue to increase, these CIOs and portfolio managers can’t just sit on the couch dreaming of what their asset management should look like; they have to act.

To be proactive, a growing number of defined benefit and defined contribution pension plans around the world are looking to do more in-house asset and risk management, according to Pension Funds DIY: A Hands-On Future for Asset Owners, a new report commissioned by State Street Corp. in cooperation with the Economist Intelligence Unit that surveyed more than 130 pension fund executives.

Here are some of the report’s key findings:

  • 81 percent of survey respondents are “exploring bringing more asset management responsibilities in-house over the next three years,” in part due to cost concerns, with 29 percent of participants stating it is difficult for them to justify fees for external asset managers.
  • 52 percent of the pension fund executives surveyed are not confident that their asset manager’s interests align with their own.
  • 53 percent of respondents are planning to use more “lower-cost strategies to achieve desired investment outcomes,” with 43 percent of respondents also expanding the number of technology platforms and software solutions they use.
  • 51 percent of survey participants view strengthening their governance during the next three years as a high priority.

Finding the right balance between the need for external investment management support and what is truly possible on an in-house basis is bound to create shifts in the industry in the years to come, with more than just a few sore thumbs likely along the way.

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Jennifer-Molloy91x119Jennifer Molloy is editor of The Institutional Real Estate Letter – Asia Pacific.

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