Higher illiquid allocation led to lower returns last year, according to a survey of returns of fiduciary managers operating across the UK pensions sector.
XPS Pensions Group’s survey found a significant gap between the highest and lowest performing fiduciary managers, with their stance on illiquid being one of the factors for this wide dispersal of returns.
In total it found there was a 12.9 per cent gap between the highest and lowest performing fiduciary managers, with the top performing FMs products returns of 13.4 per cent and lowest-performing just 0.5 per cent. The typical global equity portfolio returned 15.7 per cent across the same period.
XPS also found that while all portfolios delivered positive returns, only one FM outperformed a traditional 60/40 portfolio across the year. A number of fiduciary managers some underperformed their targets by 3 per cent or more.
However XPS said while portfolios that were most exposed to illiquid assets like infrastructure and real estate were most likely to see lower returns this was in direct contrast to the experience of FMs in 2022 — when illiquid assets drove higher returns. It said this could be down to continued tail effects from the gilts crisis of late 2022.
The variable performance came despite a strong year for markets, in which more uniform returns might be expected as fiduciary managers had the opportunity to benefit from rising listed asset prices.
XPS Pensions Group partner André Kerr says: “It is surprising to see this level of variance in the investment performance of fiduciary managers across 2023, despite it being such a strong year for global markets.
“With the Government exploring ways to give pension schemes access to surplus, there are now more options for schemes around their endgame, which may change investment calculations. Regardless, schemes should keep a watchful eye on whether the strategy being employed by their fiduciary manager aligns with their investment goals.”