Fiduciary managers have failed to deliver returns for pension schemes over the past year, in what has proved to be difficult market conditions, according to a new report.
In a new report XPS Investment has analysed the growth portfolio performance of 90 per cent of the fiduciary management market, and found a wide range of performance for schemes during 2018.
This XPS FM Watch found that fiduciary managers had significantly underperformed targets over this year, with underperformance ranging from 6 per cent to over 11 per cent.
XPS Investment says this underperformance could translate into losses ranging from £4m to £8m for a £100m scheme with 70 per cent exposure to growth assets.
Despite these disappointing results, the report said that longer-term performance of FMs is much stronger. However it pointed out that FMs still delivered a wide range of outcomes, with the difference between best and worst performance equating to 28 per cent over a five year-period.
XPS pointed out that 2018 was a significant test for FMs with financial markets having their worst year since the financial crisis in 2008 and the stock market crash in 2011.
XPS Pensions group head of fiduciary oversight, André Kerr says: “The performance of fiduciary managers’ growth portfolios has disappointed in 2018. This is what we’d expect if market exposures rather than manager skill were driving returns, which is something we prefer to see.
“However, their performance over the longer-term has been good, with most achieving their targets and outperforming diversified growth funds. It’s difficult to draw conclusions from just one year’s performance, especially when we’ve experienced such testing markets. It’s only through continued tracking that we will determine whether 2018 was a blip or something more worrying.”
“The range of outcomes in performance shows that not all FMs are the same. This is why it’s really important that schemes considering fiduciary management appoint the right provider for their needs. The number of UK pension schemes having appointed an FM is growing, with around 1,000 schemes using some form of fiduciary management, representing assets of over £160 billion, so performance could have a huge impact on UK pension schemes.”