Trustees can use fiduciary management to outsource the day-to-day management of an entire pension scheme or a portion – such as an alternative investment mandate – to a fund manager or consultant.
Andrew Dyson, head of institutional EMEA at BlackRock, said fiduciary management could respond to market changes and opportunities quicker than traditional models – which was essential for alternative investments.
“Alternatives are the most complicated asset class and are very difficult to do well,” he said.
“Information about more liquid assets like equities are easier to understand, whereas alternative investment strategies, like hedge funds, can be hard for trustees to grasp conceptually.”
He added the timing of investment decisions was more important for alternative investments than for other asset classes.
“If you are investing in equities they can go up and down in price, but ultimately you expect the end result in the long term to be positive. But with alternatives you can still be under water however long the investment is held. High yield bonds are a good example. If you had bought them just before the credit crunch last year you would now be in a very bad way.”
Dyson said fiduciary management had taken off in the Netherlands, where regulation was strong and LDI common.
“This is a very important factor when you get thinking about the pension world in the UK,” he said. “The technical framework of regulation and the growth of LDI is found in both.”
The Cumbrian County Council, GKN and Astra Zeneca pension schemes have switched to undertaken the use of the fiduciary management for part of their portfolios in the last year.
