UK - Fiduciary management is becoming increasingly popular among UK pension funds, with 17% of schemes having already delegated their investment decision-making, a new survey shows.

According to the 2011 Aon Hewitt Delegated Investment survey, the recent market turbulence has accelerated the adoption of delegated investment as a mainstream offering.

As a result, 8% of the 299 pension schemes surveyed are now exploring fiduciary management strategies.

The increased interest is directly linked to the speed of investment decision-making and investment implementation, Aon Hewitt said.

Most pension funds believe the frequency of trustee meetings and the limited time available for investment issues and matters relating to governance structures hamper their investment decisions, it added.

John Rushen, UK head of investment consulting at the consultancy, said: “It is true governance structures can stymie a scheme’s ability to act swiftly on investment irrespective of trustee commitment, and the complexity of today’s investment landscape is felt to compound the issue.

“But the opportunity cost of sluggish execution is only heightened by periods of significant market volatility, such as we are currently seeing.”

Rushen said the current market volatility was driving pension scheme into fiduciary management.

“When the market moves several percentage points a day, opportunities to capture value come and go,” he added.

“Market timing requires focus, skill and conviction if the outcome for the scheme is to be positive.”

Aon Hewitt’s report points out that trustees still face important challenges to reduce risk and optimise their schemes’ performance through diversification when no fiduciary management strategy has been implemented.

As a result, 43% of small schemes and 43% of medium schemes invest in no more than three asset classes.

Rushen deplored the lack of time accorded to investment issues on trustee boards and conceded that this lack of diversification would need to be taken into account.

“When you are spending less than 20 hours a quarter on investment matters, trying to reduce market exposure through wider asset allocation can be a daunting prospect,” he said.

“Putting more assets in the mix requires greater monitoring and judgement. But diversification at the asset-class level or in terms of strategies and styles can further reduce portfolio volatility, and we expect this to become a more prominent driver of delegation in the near term.”

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