European pension reforms and property investments
Important changes are coming quickly to Europe's retirement savings industry. Funds are under pressure to consider investment in a portfolio context, and are giving more serious consideration to alternative investments. As new regulations and standards of best practice emerge, funds will increasingly consider broadening their exposure to alternative investments, particularly property, which compares favourably with stocks and bonds on a total potential return and return-to-risk-ratio basis. This paper shows that, based on some fairly conservative assumptions, property should perform well when compared with other asset classes.
UK pension fund management after Myners: The hunt for correlation begins
The Myners Report will have a number of significant consequences for pension fund management and performance measurement in the UK. First, it changes the way in which assets are selected. The strategic asset allocation will have overriding importance in pension fund management. Asset classes will be selected on the basis of their match with liabilities in terms of correlation and volatility, rather than on the basis of expected return. Every pension scheme will have a scheme-specific funding standard that reflects the maturity structure of the liabilities of the scheme. Secondly, it changes the role of the fund manager. A hierarchical relationship will develop between the investment adviser, actuary and fund manager. The investment advisory function assumes a primacy over the actuarial and fund management functions. Thirdly, it changes the way investment performance is measured. Liability-driven performance measurement and attribution will replace the existing performance measurement framework in the UK. The passively managed components of the pension fund will be judged on the costs of implementation. Only the performance of the surplus assets will be measured on a conventional basis. The Myners Report is summarised and an illustrative statement of investment principles and transparency statement are presented.
Performance clustering and incentives in the UK pension fund industry
Despite pension fund managers being largely unconstrained in their investment decisions, this paper reports evidence of clustering in the performance of a large cross-section of UK pension fund managers around the median fund manager. This finding is explained in terms of the predominance of a single investment style (balanced management), the fee structures and incentives operating in the UK pension fund industry to maximise relative rather than absolute performance, the high concentration in the UK pension fund industry and the low turnover of fund managers. Fund size appears to be the only variable that can account for an important fraction of the cross-sectional variation in measured performance.