IPE and Create Research surveyed 87 pension funds and 135 asset managers across Europe. The groups found pension funds rate consultants’ performance as poor or limited when it comes to strategic asset allocation, manager selection and strategy implementation.
Pension funds are also unimpressed with asset managers in areas such as returns on investment, strategic or tactical asset allocation, access to new asset classes and investor activism.
The research study says: “At the end of a turbulent decade, European pension funds find they no longer manage risk, they manage uncertainty. One relies on known probabilities of returns on different asset classes, the other on pure guesswork.
“Asset values have dropped like a stone, as the new mark-to-market rules have turned the US sub prime crisis into a global disaster. Together, these events have triggered formidable challenges – the risk-return features of most asset classes have become hugely volatile, the correlation between old and new asset classes has gone through the roof, strategic asset allocation looks like a casino game, and new products verge on financial alchemy.
“The emergence of these new risks has challenged the old certainties and exposed new weaknesses in all activities associated with the delivery of pensions. Pension funds can no longer count on their consultants and asset managers to help them navigate through uncharted waters – its time for them to up their game.”
IPE and Create Research called on pension funds to tackle the skills and governance gaps that promote “herd instinct and rear view mirror decision-making”. Pension consultants must re-think their “time-honoured” approaches to asset allocation and manager selection the study says. Meanwhile, asset managers need to stop selling what they have and start selling what their clients need by creating products that are “fit for purpose” backed by a value-for-money fee structure.