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Leave allocation to managers – Hewitt

UK - Trustees could leave asset allocation to asset managers in order to motivate them to create wealth for the pension fund, says a consultant at Hewitt Bacon & Woodrow.

Speaking at a conference Hewitt's Kerrin Rosenberg said: "Asset managers are not incentivised to create wealth, to improve the financial health of the fund." Rosenberg argued that managers would feel more motivated if trustees delegated asset allocation to them.

"The question is who do you think is in a better position to make an asset allocation decision, the trustees or the fund manager?" he told IPE.

"Some trustees may take the view that fund managers are in a better position and therefore they should think very carefully about their overall objectives but then delegate the asset allocation within those objectives and risk tolerance,” Rosenberg said.

The comments follow a survey this week that found that pension funds in the UK are relying more on consultants - but have little or no idea how to measure their advice.

Trustees could set up a measurement framework to keep monitoring the asset manager. Rosenberg said he thought many clients would like to go for this option provided that they and the consultant were satisfied that the manager could deliver.

"There are not many fund managers that have any track record of doing this sort of job," he conceded, but added that if asset managers were allowed to take asset allocation decisions they would be “more incentivised to make the fund better off”.

"There is a small number of organisations who seem to have an interesting product," he said, adding that Hewitt was still conducting research in the field.

Pension funds, on the other hand, must have a more articulated idea of what they need to achieve.

"I would imagine that there is not a very large number of pension funds in this country, who have a clearly articulated performance objective."

Rosenberg also said trustees were still digesting the consequences of a June 2003 change in the law, which prohibits solvent sponsors to walk out on pension funds.

The law says sponsors should give wound-up schemes enough money to secure benefits. “Once if the pension scheme was underfunded, it could have remained underfunded and people lost out," Rosenberg explained.

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