Fiduciary managers have been evolving their capabilities to meet the changing needs of UK defined benefit (DB) pension schemes since 2022, according to a survey from IC Select.
IC Select’s survey explored how the fiduciary market has changed since the 2022 liability-driven investment (LDI) crisis.
Some 14 fiduciary managers took part in the survey, including Aon, BlackRock, Columbia Threadneedle Investments, Brightwell, Cardano, Charles Stanley, Goldman Sachs Asset Management, Legal & General Investment Management, Mercer, Russell Investments, Schroders Solutions, SEI, Van Lanschot Kempen, and WTW.
The first key theme the survey illustrated was market consolidation. IC Select noted that In May 2024, Columbia Threadneedle announced that it would be exiting the fiduciary management market at the end of the year. In June, Mercer announced that it intended to acquire Cardano, which is expected to expand the firm’s UK fiduciary management business significantly.
IC Select added that there is market speculation that there will be further corporate activity and consolidation in the sector.
Another theme highlighted by the survey was shifting client needs. IC Select said that with business models and profit margins under scrutiny, fiduciary managers need to ensure that they are set up for the changing needs of UK DB pension schemes.
Following the LDI crisis, more schemes are better funded and so targeting lower returns above their liabilities.
IC Select said it also saw evidence of adaptability in the expansion of fiduciary managers’ capabilities in end-game portfolio management and in their ability to offer value-for-money solutions to smaller clients through competitive fees and/or simpler investment portfolios.
Mandates
The survey noted that over the last five years, the UK fiduciary management market has grown by 40% by number of clients and 32% by assets under management.(AUM). Considered as an annualised growth rate, this represents 7% per year by number of clients and 6% per year by AUM.
It added that in 2023, 52 schemes changed their governance model from an advisory model to fiduciary management. In numerical terms, it said this has been the typical level seen in three of the last five years.
The exceptions to this were 2020, when COVID-19 reduced the governance budget available to complete searches, and 2022, when the Gilt crisis had an impact on the capacity of trustees, IC Select added.
Excluding the large lift-outs of internal pension fund investment departments, the average size of new mandates has remained above £200m for the fourth consecutive year. This, IC Select said is a significant change from the four years that preceded 2020. During this period, the average mandate size was £120m.
IC Select said that while more large schemes are now adopting fiduciary management, the market remains dominated by smaller schemes. Two-thirds (68%) of schemes by number have assets of less than £100m, and half have assets below £50m.
However, well over half (76%) of the assets are in schemes with more than £500m in AUM. Schemes with more than £1bn in assets represent 66% of the total for the fiduciary management sector, with the British Airways, National Grid Centrica, Royal Mail and BAE Systems schemes making a significant contribution to this percentage. By contrast, schemes with less than £50m in assets contribute less than 4% of the total.
Anne-Marie Gillon, director and head of research at IC Select, said: “Our survey findings underscore the resilience and adaptability of the UK fiduciary management industry. Despite facing unprecedented challenges, we’ve observed fiduciary managers evolving their capabilities to meet the changing needs of UK defined benefit pension schemes.”
IC Select added that the survey results come at a “crucial time” for the industry, with speculation of further corporate activity and consolidation on the horizon.
Read the digital edition of IPE’s latest magazine
No comments yet