Industry professionals are re-assessing traditional investment and pensions models in the light of recent market turbulence, according to a survey published by Penrose Financial.
Of over 150 senior figures surveyed within the UK pensions and investment industries, more than one in three feared the role of traditional investment consultants will come under threat as investors lose faith in consultants and demand more flexible solutions. Almost 60% of respondents said fiduciary management will challenge the existing pension fund management model in the UK, although a third said pension funds would still value the advice of consultants.
The survey also suggests multi-strategy investment managers, offering both alternative and traditional investments, would prove the most successful business model, with only one in eight envisaging such a positive outcome for traditional long only managers. Although institutional and professional investors will continue to invest in a diversified mix of asset classes, 74% thought pension funds will increase their exposure to hedge fund and/or other asset classes, while one in eight cited emerging market equities as one of the best asset class to invest in over the next three years.
More than 90% expected ‘unsustainable’ defined benefit schemes to continue to close to existing members because of cost pressures on sponsoring employers. However, more than eight out of ten respondents also felt the proposed system of personal accounts, aimed at boosting retirement saving among low to middle income groups from 2012, will fail to provide adequate incomes for retirement, as employers will simply level down their existing pension provision to the statutory minimum. Nonetheless, nearly half of respondents felt the proposed employer contribution to the new system was excessive.
Other key findings from the survey:
- Nearly half (47%) of respondents felt that tougher regulation would drastically cut the number of hedge funds, but most respondents felt the industry would survive, albeit with fewer stronger funds around.
- More than four out of ten respondents (41%) thought UCITS IV legislation would take more than two years to come into practice and would have less impact than UCITS III.
- Nearly half (49%) of respondents said that although the notion of decoupling in emerging markets is a reality, it will play less of a role in the future due to globalisation, whereas a quarter thought it was already defunct.
- Respondents were split over exchange traded funds (ETFs), with 45% expecting the class to ultimately rival mainstream funds, and 49% believing they would remain the preserve of sophisticated investors only.
- More than two thirds (68%) of respondents thought the era of the ‘star fund manager’ will survive, and that fund managers with proven track records remain an appealing draw for investors, despite concerns about a ‘herd mentality’.
Sally Todd, managing partner of Penrose Financial, said: “This survey paints a picture of an industry in flux, with traditional models under increasing pressure from market upheaval, regulatory change and innovative new approaches. Although fiduciary management appears to have a bright future in the UK, practitioners in this space will have to prove themselves by producing strong performance. At a time of increasing consolidation, some investment managers face a tough fight for survival, with multi-strategy firms most likely to succeed. The diversified portfolio mix will remain popular, with global and emerging market equities, investment grade bonds and hedge funds expected to be attractive investments over the next three years. In such a climate of rapid change, innovation and flexibility will be required of all market participants, from pension fund trustees to consultants to investment managers.”
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