UK funds show interest in absolute returns

UK – Pension and charitable funds have shown that they are interested in pursuing an absolute return, or targeted, strategy.

A poll of delegates conducted electronically at a seminar today found that the overwhelming majority are interested in absolute returns.

Forty-eight percent of 48 executives from pension funds and charity trusts said they were “interested now” in a targeted return strategy – a strategy that moves away from benchmarked returns and towards a strategy that is tailored to a fund’s needs.

Thirty-seven percent found it “interesting, but not now” and 11% found the idea “interesting but too radical”. Just four percent said they were not interested at all. The poll took place at a seminar organised by Baring Asset Management in London.

The respondents were bullish on stocks in the next three years. Ninety-five percent said they see a positive return on equities in the next three years.

Baring Asset Management currently manages around 250 million pounds using target return criteria, said assistant director in the UK institutional business Annabel Gillard. Barings runs about 20 billion pounds overall and approximately six billion for UK institutions.

Gillard said the company has not set any targets for the growth of the business and that most business to date was from existing clients.

The head of Barings’ strategic policy group, Percival Stannion, said that most of the company’s business is relative return business and that it is likely to stay that way. “But people have lost sight of what returns they need.” He added that the “obsession” with how your competitors are doing is confusing matters.

He queried set notions of beating an index, saying, “benchmarks are not always appropriate”. “These assumptions have to be questioned,” he told delegates. The move into the absolute return area will see fund managers having to earn their fees, Stannion said. “The point about this process is that it puts the burden back on the fund manager.”

Stannion recognised the boldness of the move by UK retailer Boots to shift its entire pension fund portfolio into bonds but said it means its portfolio is now too inflexible and that it doesn’t reduce all the risks. Absolute returns were a “potential solution” to the problems at pension funds and charities, he added.