UK - The Personal Accounts Delivery Authority (PADA) has revealed that around 80% of pensions social partners support the use of alternative assets in the investment strategy of personal accounts, with property and commodities considered the most appropriate diversifiers.
In a report on the key findings from the investment strategy consultation launched in May 2009, PADA said it plans to carry out further research and analysis to address some of the issues raised by respondents. This includes behavioural attitudes to loss - following the recent financial crisis - and how best to incorporate responsible ownership into the strategy. (See earlier IPE article: PADA initiates discussion on investment)
A timeline published in the report showed various policy and research papers will be published on these areas in spring and summer 2010, before PADA finalises its advice to the trustee board on the scheme's investment approach.
The trustee corporation will be appointed in 2010, with the first Statement of Investment Principles (SIP) issued before Spring 2011. It is then estimated that the necessary investment managers will be appointed before the spring of 2011, which is when the 'soft launch' of the scheme will begin. (See earlier IPE article: Personal accounts to 'soft launch' in 2011)
Although PADA stressed the report does not contain any recommendations, as these are still in development, it noted that despite a lack of consensus on the overarching investment objective the likely characteristics of members "points to a benchmark objective".
It added that of those respondents who supported a benchmark objective "the majority thought an objective to generate returns in excess of inflation was the most suitable. We agree with this view and believe such an objective will help create confidence."
Other findings showed 37 of the 46 responses [around 80%] to the question on alternative assets supported their use by personal accounts, with only three responses rejecting the idea. Stakeholders did identify potential problems with the asset class - such as liquidity issues, daily pricing and costs - but it was felt these could be overcome in order to achieve greater diversification.
Figures revealed that outside of equities, bonds and cash, property was the most highly recommended asset class for investment, closely followed by commodities. The report noted almost all of the investment managers advocated the inclusion of property in the default fund, while insurers and professional bodies identified property and commodities as the most important diversifiers in mainstream asset classes.
However, the consultation - which received 67 written responses and involved over 100 stakeholder representatives at roundtable discussions - revealed that target-return banking products, structured guaranteed return products and constant proportion portfolio insurance products - a form of derivative - were found to be inappropriate for the scheme.
In addition, the report showed passive management was recommended as the dominant investment style to keep costs low, but divided views on the use of tactical asset allocation. It resulted in PADA stating it "will continue to explore the merits and challenges associated with tactical and dynamic asset allocation, before making its recommendation to the trustee corporation".
Mark Fawcett, investment director at PADA, said: "Our aim is to ensure that the recommendations we make to the trustee corporation are based on the best information and evidence possible. We will continue our work on investment issues to ensure we recommend the right approach for future members."
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