UK – Trustees should be more aware of how a consultant's asset-liability model (ALM) impacts a pension fund's strategic asset allocation, IC Select has warned.

Company director Roger Brown said guaranteeing that trustees have a better understanding of how a consultant's proposed ALM was performing would "lead to a step shift in governance" at funds.

Brown was speaking as his company launched a programme that allows trustees to compare various consultants' ALM approaches and how these differed based on exposure to areas such as growth assets.

"We had thought that the difference between models would be small, but this is not the case," he said.

"For example, we have found that, to achieve an expected return of 4.5% over 10 years, one firm's model indicates that a portfolio invested 20% in growth stocks is appropriate whilst the model at another firm requires almost 80% of the fund to be invested in growth assets."

Brown said the differences were not "trivial" and that the implications of any variation were significant for funds.

"It is vital trustees be aware of how their investment consultant's asset liability modelling can affect their strategic asset allocation," he said.

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