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Special Report

ESG: The metrics jigsaw


Scheme specific benchmarks become the norm

More than half of UK pension funds have now adopted their own benchmarks and follow a scheme specific investment policy, according to analysis by UK performance measurer CAPS.
By the close of 2000 57% of schemes had implemented a tailored benchmark for the fund
compared to 45% in 1999.

Alan Wilcock, research and development manager at CAPS, notes that funds with benchmarks actually fared relatively well in comparison last year, with 59% outperforming their targets by an average of 1.6%.

“The pension funds that set their benchmarks last year have tended to allocate more to overseas equities than those who set up benchmarks earlier,” says Wilcock.

Until last year, 70% of equity allocation had been invested in UK equities and 30% overseas.
Today, a third (34%) has been allocated to foreign shares. Within the overseas equity allocation limits, fund benchmarks set in 2000 allow for 40% to be invested in European shares, 28% in US stocks and some 30% in Japanese and Pacific equities with an emphasis on Japan.
“This is substantially different to how discretionary fund managers have set their investments – they would have a much higher European allocation and a lower US one,” Wilcock adds.

Scheme size does not seem to matter when it comes to whether a benchmark is adopted, although investment strategies do change according to fund size, CAPS claims.

The research also found out that the bigger a fund is, the more likely it is to have a passive portfolio: more than half (55%) of schemes with over £500m (e790m) in assets have passive briefs. Funds with less than £100m of assets rarely have passive investments, but those who do, seem to have most of their cash under passive management. In fact, the research suggests, the smaller the fund with passive investments the larger proportion of its assets it has in the brief.

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