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Ireland to seek diversified growth after positive April returns

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IRELAND - Irish managed pension funds returned 1.2% in April according to the latest figures from Hewitt Associates, although the consultant warned the era of these funds may be over.

The monthly Hewitt managed index revealed a positive average return for the third month in a row, despite a fall in eurozone equities and bonds (2.4% and 0.8%, respectively) last month, due to uncertainty around the Greek sovereign debt crisis.

Deborah Reidy, spokeswoman for Hewitt Associates, said: "Global equity markets were stronger, returning 1.9% for the month and a typical pension fund should have posted a positive return for the month."

Hewitt highlighted that a number of investment managers have recently created new products that differ significantly from the traditional managed fund - so-called diversified growth funds.

Reidy stated: "In many cases these have superior risk/return profiles and are better diversified than their managed fund counterparts. Many access new asset classes not previously available to smaller DB schemes or DC schemes such as commodities, active currency, hedge funds, private equity."

Hewitt said it had changed the way it surveys pension funds, including a re-launch of its quarterly InVision survey of group pooled pension schemes, including the removal of the managed funds category to be replaced by multi-asset funds. This allowed the inclusion of both traditional managed funds and the newer diversified pension funds. The InVision Survey is also ranked in terms of risk on the basis of the historical volatility of each pension fund's monthly returns.

Reidy said: "For over 20 years managed funds have dominated pension fund investment in Ireland. The idea behind the Irish managed fund was that it would be a 'one-stop shop' for investors; both defined benefit (DB) and defined contribution (DC) alike. The attraction of a managed fund was that the investment manager would allocate between equities, bonds and property and this would offer professional oversight and diversification."

Reidy argued that recent experience had caused investors to question the rationale behind these funds and, in particular, why there was little evidence of active management outperformance. She said the investment manager community often blamed peer group surveys for not actively managing funds, so they do not deviate from the average performance.

Hewitt said the asset allocation of Irish managed funds - with an historical bias to Irish equities and property - "remained fairly static without justification solely because few managers found differentiation palatable". She added: "Any major shifts in allocation were predominantly due to market movements rather than active allocation".

However, Reidy argued, diversified funds can be seen as "real alternatives to managed funds and should be considered for any investors seeking long term real returns either for DB Schemes and also as an offering (or even the default) of a DC scheme".

She added: "Detailed qualitative evaluation is as important as quantitative evaluation, particularly where trustees are considering one of the newer funds which, in some cases, are much more complicated than traditional funds. Trustees will need to be comfortable with any fund they choose. But one thing is clear - investors have never had so much choice. The era of the 'managed fund' is well and truly over."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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