Pensions Look to ‘In-Source’ Investing
Pension funds are looking to build their internal investment teams and hire more staff to monitor risk in-house according to a survey from State Street.
Ian Hamilton, managing director, asset owner solutions at State Street, said at a media briefing: “Over the past 12 to 24 months there has been a trend for pension schemes to move investment teams in-house and that will continue. This will not stop at the $10bn-plus funds as pensions want to make quicker, more tactical decisions.”
The survey, ‘Pensions with Purpose: Meeting the Retirement Challenge’, found that 45% of pension schemes expect their internal investment teams to grow over the next three years and 48% expect their in-house risk team to expand to monitor these investment decisions more actively. Hamilton said: “We will see the big pension funds hiring a chief risk officer.”
In addition, trustees will have to increase their investment knowledge in order to monitor larger in-house teams and Hamilton expects an increase in independent trustees.
He said the two other main themes from the survey were consolidation and changes to governance procedures.
More than half, 52%, of pension schemes in the survey plan to consolidate the assets of multiple retirement plans over the next three years and a further 19% intend to do this over the longer term.
“Pensions want to consolidate, not just to achieve economies of scale and reduced fees, but also to leverage in-house talent,” added Hamilton. “They also want consolidated risk management and reporting.”
For example, the UK government is examining pooling the assets of 89 existing local authority pension funds. The Mayor of London appointed an advisor on pensions and investments last year to drive collaboration between public sector pension funds and save costs through greater efficiencies, lower fees and improved returns.
Last year the London Pensions Fund Authority and the Lancashire County Pension Fund announced a £10bn partnership to deliver cost savings and improve performance. The partnership expects to reduce combined investment fees by more than £32m ($45m) within five years.
In the State Street survey more than two-fifths, 41%, of respondents plan to increase the detail or frequency of reporting to the board this year while a similar percentage will increase transparency to members about the governance and investment performance of the fund.
Oliver Berger, head of Asset Owner Solutions & Strategic Market Initiatives, Sector Solutions EMEA at State Street, said in a statement: “While there’s not one single strategy that will solve the challenges for the entire industry, pension funds are focusing on owning the right mix of talent, strategy, risks and efficiency gains. Amid other demographic challenges, we have fewer workers to support a growing retirement population and it’s time for the industry – both providers and members – to find new innovative solutions.”
State Street carried out a survey of 400 pension professionals in 20 countries at the end of last year. Nearly half, 42%, of the participants had assets of between $1bn and $1.9bn, 28% had assets from $5bn to $9.9bn and 22% oversaw assets of more than $10bn.
Featured image via iStock
Total assets under management grew to more than $10 trillion in 2021.
The global alternative asset management firm listed on Nasdaq.
Regulator has proposed sustainability disclosures for fund managers and regulated asset owners.
The consolidated quote system for corporate bonds has raised funds to expand outside the US.
Bond funds saw strongest inflows since 2016.