There has been modest growth in the UK’s fiduciary management market, with AUMs increasing by 20 per cent in 2024 according to Isio.
In its latest annual FM survey, Isio says this largely correlates with the increase in multi-billion pound outsourced Chief Investment Office (OCIO) mandates entering the FM market.
However it points out that growth in fiduciary mandates within the DB market has slowed, with an increase of roughly 1 per cent as of June 2024. Overall partial mandates grew by 0.4 per cent, while full fiduciary mandates rose by 1.2 per cent. Notably, schemes are increasingly well-funded, which has led many trustees to pursue simpler, lower-risk investment strategies, reducing the need for complex fiduciary solutions.
Yet despite this slow growth in mandates, FM AUM experienced a significant boost. Full fiduciary mandates saw an increase of over one-fifth (22 per cent) in AUM, and partial mandates rose by just under one-fifth (16 per cent).
Isio says this shift reflects an increasingly popular trend of Outsourced Chief Investment Officer mandates, many of which are tasked with supporting trustees with the implementation of their scheme’s investment strategy, whilst maintaining a separate, third-party investment advisor.
Meanwhile the FM survey also found that over a third (34 per cent) of fully delegated mandates are under the oversight of an independent advisor.
Isio says growth in this market comes amid ongoing economic uncertainty. Since the 2022 gilts crisis, investment markets have stabilised, but the shake-up has left a lasting impact, with DB schemes driving fiduciary managers to refine their risk management and governance strategies.
Isio also found that fiducial managers reported notable shifts in asset allocation strategies. Key changes compared to 2023 include an increase in illiquid assets by and a decrease in property allocations. Although liability hedging targets remain stable, the collateral supporting them has diminished, signalling increased confidence in overall liquidity within scheme portfolios.
This reallocation suggests that schemes with longer time horizons, often those pursuing a “run-on” strategy, may now be more open to incorporating illiquid alternatives, placing greater emphasis on managers’ ability to deliver value within private markets.
Isio’s research found that funding levels across fiduciary management mandates have improved significantly, with an 11 per cent increase in mandates funded over 90 per centon a Technical Provisions (TP) basis, and more than a third of fully delegated FM mandates now exceeding 100 per cent funded.
Isio says these gains reflect the positive performance of growth assets and the rise in gilt yields, with many schemes taking steps to de-risk, elevate hedging targets, or execute insurance transactions.
On fees, fiduciary management costs have largely stagnated following recent declines driven by Competition and Markets Authority (CMA) retendering and competitive pressures. Higher gilt yields have led to a drop in average scheme size, halting further fee reductions across asset levels.
Paula Champion, partner and head of fiduciary management oversight at Isio, says: “As fiduciary management evolves in 2024, the industry faces both new demands and shifting dynamics that reflect the maturing landscape of UK DB pensions.
“The AUM growth of 20 per cent this year highlights how large OCIO mandates are reshaping the market, yet a slowdown in mandate growth suggests a greater emphasis on de-risking and simplified strategies for well-funded schemes. This pivot brings governance to the forefront. Trustees are increasingly turning to independent advisors and third-party evaluators to ensure robust oversight, with 34 per cent
of fully delegated mandates now under independent review.
“Amid improved funding levels and a rise in buyout and buy-in activity, fiduciary managers are embracing CDI and alternative asset strategies to support clients approaching their endgame. This shift reveals a focus on achieving sustainable, low-risk returns while maintaining the flexibility needed for insurance transitions. As regulatory pressures drive schemes to formalise endgame objectives, fiduciary managers are poised to play a crucial role in preparing schemes for insurer-ready transitions, reinforcing their value in an increasingly complex environment.
