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Don’t castigate managers - Unilever pensions head

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SWITZERLAND - Pension funds should not castigate their active asset managers for failing to add value to their portfolios, Unilever’s Philip Lambert has told a conference.

Lambert said that pension funds base their asset allocation on asset-liability studies, pointing out their decisions are more funding than investment oriented and that asset managers have no say in the allocation process.

Lambert, group head of corporate pensions for the food group, made this comments at a conference in Geneva organised by French business school Edhec.

He was responding to a presentation by Edhec professor Lionel Martellini.

Martellini said that pension funds in Europe are starting to neatly split alpha from beta by pursuing a core-satellite strategy as few active asset managers could beat their benchmarks.

These managers were tied to tracking errors and rigid benchmarks and face “schizophrenic” investment situations, where they mainly perform passive management while being paid for being active.

“It is difficult enough to play the markets, if one has to do it with a hand tied behind your back, there is little chance one can make it.”

Martellini told IPE on the sidelines that he did not mean that active asset managers are over-paid but that their situation can be bizarre.

“It is bit like going to the barber and saying ‘cut my hair, but do not cut my hair because I do not trust you’.”

He also criticised managers for spending too much resources and energy on stock picking.

He argued pension funds should rely on brand names for cheap core or passive management, while demand performance of satellite or alpha managers. Mixing the two was “very ineffective”, he told delegates.

But Unilever’s Lambert said: “There are still active asset managers who deliver alpha. I do not expect added value, asset allocation is a decision that pension funds make themselves.”

He said he did not expect miracles of managers who have to follow a tracking error but also said he thought that splitting alpha from beta could not be done “to such an extent that it could escape market risks”.

Alternative investments like hedge funds, private equity and real estate could add value to the portfolio, Lambert observed.

He said: “I agree that we must have both alpha and beta but we should not escape beta.” But he added: “Beta must be properly mixed.”

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