UK - Mercer, the consulting firm, has created a spin-off to its implementing consulting service for the UK pensions market, to allow trustees to delegate much of the day-to-day decision-making related to funding levels.
The new governance framework and management service, known as the Mercer Dynamic Derisking Solution (MDDS), is designed to speed up decision-making on investments, rather than waiting every 3-6 months for the trustee board to meet, and place a more rigid structure on processing so decisions can be taken on funding level management without the need for constant trustee consultation.
More specifically, any pension fund board who decides to take up the new service will be delegating or asking Mercer officials to take control of the scheme's investment strategy "within a pre-determined set of parameters" and alter the portfolio depending on whether liabilities need further de-risking or downside protection.
Mercer will manage the selection of asset classes and asset managers - as would be the case when acting as a fiduciary manager or under Mercer's implemented consulting - and Mercer will then "use a proprietary tool to calculate an expected funding path and recommend a series of funding level bands" once funding targets, timing and risk tolerances are agreed by the trustees.
The aim is to create a system which allows Mercer to automatically make investment changes if the investments are seen to "cross a [funding] band", but at the same time bank investment gains and limit potential losses, said Alan Baker, chief operating officer at MDDS.
"We believe that there is strong demand for a delegated solution, and the research we've conducted shows company and trustees reactions are very positive about this approach to risk control," said Baker.
"We've developed the MDDS solution with the UK defined benefit market in mind, but believe it will be adaptable to other markets with a significant number of defined benefit schemes," he added.
That said, the plan is not to take on market timing decisions, rather to build a pension funds' growth portfolio, according to Baker.
The service is designed to appeal to all sizes of pension scheme, he continued, though closed member defined benefit pensions with de-risking in mind might consider it while options such as buyout are reviewed.
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