With almost 100% of pension fund managers responding in this month’s Off the Record that they use external investment managers for at least a part of their schemes’ assets - the question that begs is who are they using and what for, and in today’s increasingly integrated global asset management scene, are all pension fund managers giving their global compadres a fair crack of the whip? Well according to the responses the answer would appear to be a resounding yes......and no!
When asked whether nationality mattered in the selection of investment managers 72% ranked it eighth from a possible list of 10 important manager criteria.
However, just over a third of pension funds admitted that all factors being equal, they would still opt for domestic based investment groups which were locally owned and 41% of funds would choose a foreign bank, but only if it had a domestic presence.
One fund manager explained why this domestic attitude still runs strongly through the veins of many pension fund trustees: “Locally-owned assures me that the investment group will have a similar mind set and frame of reference to my own.”
Not surprisingly a preference for foreign managers with no presence in the market drew fewer votes, though the spread was not as wide as some might imagine. Just under a quarter of funds surveyed would prefer foreign banks as opposed to their local providers.
In terms of the kinds of investment briefs being outsourced by funds, the trend is very much toward the specialist. Over half the responding pension schemes refrained from using balanced managers, whereas 85% entrusted specialist houses with their assets, with the highest number em-ployed by one scheme coming out at 18 investment managers.
And amongst the ranks of managers some countries’ houses are just more equal than others when it comes to being selected by pension funds.
The US managers engender the most confidence with 89% of respondents saying they wouldn’t hesitate to select a US manager for a mandate.
UK and Dutch managers were not far behind earning the respect of 84% and 74% of pension funds , followed by German, Luxembourgeois and French players.
But some pension fund managers remain as entrenched as ever in their views of foreign managers, with one announcing laconically: “If we were to consider hiring externally, which we will not do, then of course we would consider from anywhere.....”
Another pension fund manager reflected the view of most though: “We would be happy to use a manager from any country provided they meet the necessary criteria.”
However - and this may come as a surprise to asset managers who insist a local presence in a foreign market is essential for business success - office location does not appear to matter. Nearly 80% of respondents placed very little importance on the ‘site’ of their asset manager, ranking the factor ninth or tenth on a scale of one to ten. Compounding this, 28% of the respondents allocated it no importance whatsoever, despite a couple of responses stressing the need for quality communication, and one advocating a very hands-on relationship: “We believe a domestic based investment group offers better communication possibilities. It is easier to meet up and we believe that personal meetings are an essential part of the monitoring process.”
So what does ‘do it’ for pension funds when making that crucial decision? What does an asset manager have to do to impress? Where can it find that ‘je ne sais quoi’ to bowl over any prospective client? People and process appears to be the answer to that one.
A staggering 90% of respondents placed investment process or style in the top three of selection criteria, with 50% rating it as the single most important decision-swaying factor for pension funds.
And over half of funds think quality personnel is up there in the top three deciding factors.
Some pension schemes clearly have performance firmly at the top of their agenda, judging by a couple of terse responses to the question: “Performance is what is asked for.”, and “Performance will determine our manager choice”.
But just how important is past performance in the whole manager selection process? Well, the answer seems to be that what matters to one scheme is not so important to the next - with only 9% of pension funds actually citing it as the most important factor when choosing an asset manager, over 50% of funds rate it as either second or third.
Other funds are not so statistically stubborn, although some have a rather more limited selection leeway altogether: “We need an investment group with a legal entity in our country.”
But most seem to feel a combination of investment philosophy, process, performance and service, make for a healthy manager choice.
Reputation does not seem to be much of a selling point with schemes either, which may come as some surprise to asset managers.
Nearly half of the respondents placed this factor in no-man’s land, rating it either fifth or sixth in terms of importance, with around 15% of funds placing no importance whatsoever on a manager’s ‘name’.Market positioning also failed to stir up any strong emotions, seemingly confirming that this part of a manager’s marketing strategy just doesn’t impress.Just under 70% of respondents ranked market position between the fifth and seventh most essential manager features, with 14% offering it no ranking at all. Time for the marketeers to go back to the drawing boards perhaps?
Only 5% of schemes ranked consultant recommendation as the defining factor in their choice, with 11% ranking it the least important issue and 22% saying consultant input didn’t count at all in their final decision.
But what a relief to see that a resounding 100% of pension funds responding to the survey are Y2K compliant.
It says more for them than it does their service providers sadly, however, with over 20% still to get on board.
So what do pension funds fear most about the imminent millennium glitch?
Payments to pensioners blocked for several days, investment managers reporting late, computer software of unprotected participants, exchanges influencing market prices - were just a few of the comments.
One fund manager certainly showed an active imagination, announcing: “I fear that a small but ordinary failure that has nothing to do with the Y2K problem could trigger a short term panic.”
Another was looking elsewhere to fuel their anxiety: “What I fear most is that in certain regions in the world, like Asia, Latin America, Russia, firms and governments have not solved their Y2K problems. This could eventually have a negative impact on their economies, and through that on their equity markets.”
And some see the apocalypse around the corner: “I fear dying horribly in a computerised generated nuclear war,” was one foreboding reply.
As always some pension fund managers are just more laid back than others. “I think the financial market will survive the year 2000. I have no fear, “ pronounced one manager. “The Y2K problem is greatly exaggerated,” another confidently opined.
And of those funds that replied, around 50% showed no anxieties in the slightest with their feelings about this impending ‘disaster’ revealing a certain bemused indifference. “Nothing special” and “Nothing really” were standard replies, which comes as no surprise considering every single one of them is claiming to be fully prepared for D-Day. Why panic?
Well why indeed...as a manager sounding like they’d really heard enough of the whole affair concluded: “Y2K will go off like a damp squib. Let’s get on with the real issues!”