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IPE special report May 2018

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Hewitt says 20 clients move to unconstrained

UK - Hewitt Associates says 20 of its clients have now allocated assets to so-called ‘unconstrained’ equity mandates – up from six in July 2004.

It said that over the last 18 months, 20 of its clients -representing pension fund assets of more than £9.6bn - have allocated an average 12% of their assets to fund managers investing in equities without traditional benchmark constraints. It did not name the funds.

In July it said six clients, representing £5bn in assets, had made unconstrained allocations.

Today it added that it has completed 10 manager selection searches for unconstrained mandates in the last three months.

"The appetite among our clients for awarding unconstrained mandates is certainly growing,” said Ian Peart, the firm’s head of manager research.

“We view this as a pleasing acknowledgement that the current investment process is flawed and that the terms of reference given to fund managers need to change. Some investment houses have responded to this demand and we would encourage more to do so."

The firm said there are a limited number of funds capable of managing money with an unconstrained approach.

It wants managers to “recognise the opportunity such mandate allocations represent”. It is encouraging them to open new funds which to let fund managers the freedom to back their own judgement.

Hewitt is working with several firms – which it didn’t name – to set up new funds that can meet the demand for unconstrained management.

Hewitt floated the idea of ‘unconstrained benchmarks’ about a year and a half ago, and proposed that pension fund trustees hand decision-making to asset managers to let them pick the best stock regardless of country, sector and index weighting.

Elsewhere Watson Wyatt has published its submission to the Pensions Commission.

It warned against compulsory private pensions contributions as a way of trying to encourage more people to save for their retirement.

Partner Alan Pickering said: "Compelling people to save will not turn them into savvy savers. What right has the government got to compel people to save at all, or through a particular vehicle, so long as the tax system is ensuring the abolition of absolute poverty in old age?”

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