The UK Pension Protection Fund (PPF) is considering the launch of an in-house investment team in an effort to contain the growing costs of asset management.
The £20bn (€27.9bn) UK lifeboat fund, which last year amended its Statement of Investment Principles (SIP) to allow a 12.5% exposure to hybrid assets, said fund manager fees were expected to increase by one-third, or £38.6m, over the course of the coming financial year.
Publishing its strategic plan for 2015, the fund said the increased costs – up to £120.1m in 2015-16 and rising to nearly £133m by 2017-18 – was the result of growing exposure to alternative asset classes.
David Shaw, head of strategy and policy, said it was important to look at changes that could increase both the fund’s control over assets and the cost-effectiveness of investments.
He added: “That could include bringing elements or a measurement of certain assets in-house, as opposed to doing everything through asset management partners.”
The fund’s director of strategy and legal affairs David Taylor stressed that in-house expertise would only be considered if the PPF could save money through such a step.
“There are some asset classes we are clearly going to be in for the long term, and it makes sense to start thinking about bringing them in,” he said.
“There are other asset classes we may not be in for the long term, in which case building up [such] infrastructure only to then migrate out of those classes doesn’t make a great deal of sense.”
Asked which asset classes the PPF would not consider as long-term holdings, Taylor noted that the fund would not expect to be “heavily” in equities in 2030, but would not be drawn further.
However, the fund predicted the increased costs of external management would be offset by its assets rising to £25.1bn by 2018, resulting in management costs of 0.55%.
The PPF currently agrees framework agreements with its asset managers across nine broad asset classes, with managers seeded as and when the need arises.
Its global bond framework, the largest, comprises 15 managers, while four managers stand to benefit from its UK bond and derivatives activities, used to hedge its liabilities.
The fund last year returned 19.5%, 2.9% ahead of its benchmark return.
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