UK – Pension consulting firm Watson Wyatt has warned of “unintended consequences” such as higher costs and disjointed decisions due to the Myners principles on the separation of asset allocation advice and manager selection.
While there was “some logical merit” in such a move there could be unintended consequences such as “unnecessary increases in costs and more disjointed decision making”.
“According to Watson Wyatt the separation of strategic asset allocation advice and investment manager selection has some logical merit as we firmly believe in the principle of selection of advisors along ‘best-in-class’ lines,” the firm said in a release.
The government last month issued a review of the take-up of the Myners principles and found that further action was needed for pension schemes - in particular on trustee training and decision making.
“In the last three years, as pension funds have become more open to innovations such as absolute return investing, risk budgeting and liability-driven benchmarks, there has been a blurring between traditional strategic asset allocation and manager selection as well as a compression in the time between such exercises,” said Nick Watts, the firm’s head of European investment consulting.
“The result is that our clients now seldom view asset allocation and manager selection independently, but rather as a joined-up, risk-based investment strategy that is dynamic. Therefore separating these decisions could undo much progress and put a cap on innovation.”
He added: “We agree that more effort is still required to improve the governance structures of Trustee bodies while taking into account greater interest from scheme sponsors.
“Additional emphasis on this area is therefore welcome as is the desire to augment investment expertise involved in key decisions, particularly against the back drop of the need for increasingly sophisticated investment solutions.”