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Pension schemes changing managers more often

UK – Pension schemes are changing fund managers more often, according to new data from Russell/Mellon CAPS.

It collected data from 1,500 UK pension schemes which shows that 25% of schemes made structural changes to their management in 2002, compared to 14% five years ago, and 12% ten years ago.

Russell/Mellon CAPS believes the changes were mainly driven by single manager funds moving to more than one manager, and changes within multi-manager arrangements.

David Clarkson, a consultant at Oliver, Wyman and Co., says there may be several reasons for this.

One suggestion is that trustees are becoming increasingly frustrated with the performance of their managers. This is due to poor returns resulting from the last three years’ of falling markets. So they are changing their managers.

Clarkson points out: “If a manager produces returns of 12%, compared to a benchmark of 13%, trustees are generally satisfied. But when a manager returns –15% compared to a benchmark of –14% then it is easy to become aggravated.

"Not only are negative benchmark returns hard to stomach but a one percent underperformance seems much worse than were returns in positive territory.”

The trend could also be attributed to trustees not wanting to be seen to be ‘doing nothing’ when returns are negative. Changing asset managers could be a way of covering your back - it is easier to blame an asset manager than your own asset allocation strategy.

Change in asset allocation itself explains the higher rate of manager change. Once again, as a result of poor market returns, trustees have to reassess their asset allocation strategy, with many opting out of balanced mandates into specialist portfolios.

With more portfolios to oversee and more managers on their books, changes are bound to be more regular. The data shows that schemes employing only one manager tend to be fairly loyal - last year only 4% made a change, just 1% more than in 1992. Whereas 46% of those schemes with more than one manager made changes in 2002, compared to 31% in 1992.

Technological advances have also made it cheaper and easier to make regular management changes. Says Clarkson: “Technology has made it easier to move large sums of money about. Before, the market impact and costs for funds would have been significant, but advances in pension fund trading have reduced the impact.”

And pension fund consultants themselves could also be responsible. The majority of UK schemes already use consultants and the trend is growing in Europe. If consultants are advising schemes to carry out more frequent reviews, then it follows that managers may change more regularly.

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