IPE Awards: Fiduciary managers make market 'fairer' – Frijns
EUROPE - Smaller pension funds will get easier access to alternative asset classes thanks to fiduciary managers, Jean Frijns, consultant to the Norwegian Government Pension Fund, noted.
Speaking to IPE at the fringes of the IPE Awards Seminar in Vienna, Frijns said: "The increasing use of fiduciary managers will put pressure on asset managers, bringing fees down and "making the market more competitive".
"It is important for pension funds to achieve efficient portfolios and the biggest challenge in that is the access to certain asset classes because of high fees," the former chief investment officer of Dutch pension giant ABP added.
If a small pension fund decides on a private equity or hedge fund investment via a fund of fund structure, for example, he suggests, the high fees might mean it only gets a 10-12% return for its portfolio while the fund makes 20%.
"This is not enough to cover for your higher risk," Frijns pointed out, adding the "use of alternatives makes portfolios much more efficient".
He believes it is easier for larger funds because they can do the management in-house or create a separate entity to take care of private equity or hedge fund investment.
"I am not sure what the optimum size is for a pension fund but the costs and free structures are getting prohibitive so I would say large funds are slightly in the advantage to small funds," Frijns concluded.
However, he pointed out there were certain disadvantages for large funds as they suffer from limited liquidity in markets of limited size. Furthermore, access to assets which are in short supply is difficult such as instruments for hedging inflation risk.
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