Developments in the UK occupational pensions market have prompted Macquarie Investment Management to make available in the UK an index investing strategy that it has been offering to defined contribution (DC) schemes in Australia for more than two decades.
The £299.7bn (€324bn) asset manager currently has two mandates from UK clients for True Index, which delivers exact daily index returns for no management fee.
One mandate is with a defined benefit scheme for a separately managed account, and another has been developed for a DC fund with the support of Mobius Life, an investment platform, and could be a model for a commingled vehicle in future.
A spokesperson for Macquarie said the asset manager was considering a further commingled fund for public offer, but this was still under construction.
In Macquarie’s eyes, the rise in importance of DC schemes in the UK means the country is beginning to look more like its home pension market, which has been dominated by DC schemes since the 1980s and where it said consolidation of funds and a greater focus on reducing fees resulted in growing demand for products like True Index.
“A lot of it comes down to familiarity,” said Scot Thompson, co-head of Macquarie’s systematic equities team. “We’re seeing both DB and DC schemes in the UK undergoing very similar sorts of experiences where they’re challenged in terms of fees, so it’s an opportunity for us to help investors solve investment problems.”
This could take the form of developing a bespoke solution or delivering a lower cost version of “some of the more expensive indices you might find out there,” he added, citing global emerging markets as an example of the latter.
True Index is a low tracking error strategy with the addition of a total return swap. On a daily basis the swap determines that if Macquarie outperforms the index it retains the outperformance and if it underperforms it makes up the difference.
“Every single day the net asset value of the fund matches the return of the index, which is really important because then you are able to trade on the fund without any risk of breaking swaps,” said Thompson.
“Another way of thinking about it is a performance fee with a 100% clawback.”
Macquarie said that, if employed correctly, True Index strategies could increase pension funds’ diversification while helping to reduce costs.