As the government announces its choice of a national savings scheme for the foundation for pension reform, industry experts give their opinions on its suitability for the UK workforce

The 0.3% annual management charge mooted for the National Pensions Savings Scheme (NPSS) has been branded “highly dangerous” by pension experts, amid fears the failure of stakeholder will be repeated.

Pensions experts have condemned government guidelines on the use of alternatively secured pension (ASP), branding them ill thought out and draconian.

Gordon Brown’s latest actions has left scores of insurers, advisers and consumers confused and disappointed as he announced a possible U-turn on pension term assurance (PTA).

As another year ends and a new one begins, it’s always a good time to take stock, but from a fund management perspective it’s also hard to resist a spot of gazing into the crystal ball.

While the pre-Budget report (PBR) has had its detractors, its content on real estate investment trusts (Reits) has largely met with approval.

The pre-Budget report (PBR) has left bond managers cold after it failed to provide concrete answers on how the shortage of long-dated gilts can be resolved.

The trend of UK pension schemes abandoning traditional long-only mandates in favour of more diverse asset classes is likely to lead to “significant changes” at fund management companies, according to research by Watson Wyatt.

As we wind down the year, the biggest question in the currency markets is, “what next for the US dollar”?

The announcement by economic secretary Ed Balls MP, that a joint Treasury/industry working group is to be formed to study the impact of taxation on the fund management industry, has been welcomed by the Investment Management Association (IMA).

Mirabaud Investment Management, the Swiss-owned UK equity specialist boutique, has closed to new business in order to safeguard its performance levels.

The government’s decision to deny companies and trustees a period of grace to implement the pensions aspects of the age discrimination laws has led to different levels of compliance and raised doubts as to whether some companies are complying at all.

Pension schemes will make greater use of contingent assets in the future, according to Aon Consulting, as it launches a Pension Protection Fund-approved insurance product.

Trustees need better tools to meet requirements set by the Pensions Regulator, as a survey reveals out-of-date technology and a crippling lack of training among pension schemes.

The Pensions Protection Fund and the Pensions Regulator have collaborated to produce a joint study into the current state of defined benefit (DB) pension provision.

The noise around the new bulk buyout players in the pensions industry has prompted one consultant to take a swing at the “hype” over Paternoster, and other firms to declare the market movement as “evolution, not revolution”.

Lawyers are perceived to be the biggest winners post-simplification, according to a recent survey by Capita Hartshead.

The future of wrap looks to be assured in the shape of group and international wrap, even if the individual offering takes several years to bed in, according to one industry expert.

NOW that 1 December is behind us, employers with pension schemes should already have taken action to avoid any possible claim of age discrimination by members or potential members. Despite a near-total overhaul of the original regulations, the recent amending regulations still leave a number of unclear or problematic areas.

Now the G60 qualification has been withdrawn, what other options are available to those wishing to further expand their pensions knowledge and professional status?

I was at a European pension conference the other week where I was hoping to get myself up to date on the big issues around the big Euro pension questions. You know, like do the Dutch have a pension cap? And that sort of thing. As far as I could tell most people couldn’t name the 25 European Union countries at a quiz night, let alone explain how all the various approaches they take to pension provision could ever eventually come together.

The National Pension Savings Scheme (NPSS) debate highlighted worksite pension solutions but may encourage employees to demand more from their benefit packages

Bond managers need to find their inner action hero and ditch the old-fashioned investment strategies if they are to survive in a fast-evolving financial marketplace

Defined benefit pension risk management is a growing financial market, bringing both risk and opportunities in equal measure for those exploring this new landscape

Asset managers can no longer satisfy their investors with standard levels of return, as demand for scalable, portable alpha strategies is becoming par for the course

Minister for pensions reform, James Purnell, sets out the roadmap and the intentions behind the government’s reforms for the New Year

Although the wrap market has yet to fully mature, Trevor Matthews is confident advisers will realise its potential. Pádraig Floyd talks to him about the developing market

Antoinette Odoi talks to Raj Mody about life, pensions, and how the industry has changed since he started work over a decade ago as a trainee actuary

Decisions made by the ombudsman may not make the front page, but can result in huge changes for the claimant and lead to dire consequences for those not acting within the law

Far from losing ground, innovation in the SSAS market means this product is about to come into bloom

The flexibility of the SSAS comes into its own when investors need to make significant contributions, as it can be used to exceed the annual allowance

Although the multi-manager market is relatively young, it is a growth area attracting a lot of competitive interest, making it one to keep an eye on

The potential for companies that start to invest in alternative sources of energy could be limitless, if the UK government provides the right incentives and legislative changes

A £2bn deficit spurred BT’s in-house asset management company to pursue a hedge fund strategy

1. By now, most of our clients would be familiar with hedge funds and the diversification and risk control functions they can play in an investment strategy. In terms of adoption, it is mostly our medium to large-sized clients that have allocated assets to hedge funds, typically through fund-of-hedge fund vehicles. These allocation are generally between 5% and 10 % but in some instances have risen to 15%.
2. Before the market crash of 1999-2000, UK pension funds were typically over-reliant on the equity risk premium and lacked the motivation to seek the benefits of diversification available through hedge funds. However, with the subsequent increased focus on managing pension fund risk through risk budgeting, and the need to reduce deficits, hedge funds were found to be a suitable alternative.
   As a result, there have been significant allocations to hedge funds since then. However, deciding to include hedge funds in a portfolio, then selecting the appropriate ones (either through a fund-of-hedge funds manager or directly) and monitoring it requires a significant governance budget. Not all funds have such high governance resources and not all trustees are comfortable (in terms of their investment beliefs) with the asset class and it will be these for whom it is not suitable.
3. The area is notorious for having a surfeit of over-choice, particularly in single strategy hedge funds, for being secretive and for having a reputation as a risky investment. Research is critical, given the profusion of providers and strategies, and hence the quality of advice and information. Trustees ought to choose advisers on their independence, depth of research into managers in the area, and experience. Cost and fees are another area where caution is advised as they can diminish the value of this type of proposition.
4. Until now our clients have used fund-of-hedge funds, but increasingly they are looking at direct investing in selected strategies such as long-short equity, as they become more comfortable with the asset class and look to avoid a double layer of fees. We expect more pension funds to cautiously move into hedge funds next year, but only those that have the appropriate governance structures.

1. It depends on the size of the pension scheme. In general, our larger client base have adopted modest (2%-10%) allocations using a segregated mandate and have done for some time. We now see increased interest from our small and medium-sized client base and we have been incorporating hedge fund strategies into our balanced fund range.
   We generally find once trustees have been educated on what hedge funds are, explained their potential impact on a portfolio and are presented with an illustration of the risk analysis and due diligence that is performed, they are more attracted to the idea of investing.
2. There are a range of hedge fund strategies available in the market and they can have very different characteristics. At one end of the spectrum there are hedge funds that have low correlations to publicly-quoted bond and equity markets (typically with an arbitrage bias, merger or fixed income arbitrage for example) and are thus good diversifiers in broader balanced portfolios. At the other end there are funds that have more directionality (such as emerging markets or short bias funds) and as such higher risk and return characteristics, so they are used more as return enhancers.
3. The general level of information made available on hedge funds has improved greatly: fund return data, methods of investing and the regulatory environment. We generally find the education and advice provided to schemes is good and fairly in-depth, particularly in the fields of manager selection and asset allocation to hedge funds. Indeed, we find it encouraging that many leading consultants have dedicated teams to hedge funds investing and are actively analysing managers on a regular basis.
4. We will continue to see large pension funds make modest allocations to hedge funds to seek diversification in their growth assets. More forward-thinking funds may use hedge funds as part of a liability-driven investment (LDI) solution.
   When considering LDI solutions, a scheme must invest in growth assets that can generate a LIBOR-based return, as this is what is paid out in the floating leg of a swap contract. Hedge funds often have a LIBOR-based benchmark and aim to consistently outperform cash year in year out. A scheme adopting them in a LDI solution may not use them as the sole growth asset though; if interest rates rise and the value of swaps fall, then some of the growth assets may need to be liquidated. Hedge funds have limited liquidity, and as a consequence they should form only part of strategy in the growth assets, along with equities and other diversifiers.

1. Generally speaking, there is a low level of acceptance among the UK pension funds. Overall allocations are thought to be some 3% of assets under management. Few pension funds have made the move, and the likes of Hermes and Railpen, which have built up teams capable of doing research and due diligence, are the exception rather than the rule. Broadly, many pension funds remain uncomfortable with hedge funds, deterred by fee structures and falling fund-of-funds returns.
2. The suitability of hedge funds for pension funds is driven by low correlations with conventional asset classes and good returns. In addition, there has been a huge migration of investment management talent into hedge funds. For each and every pension fund, there will always be a hedge fund strategy that is suitable for it, but the barrier will often be the research and due diligence required to find that strategy and get comfortable with it. Also there’s the question of whether there is capacity available at the time the fund wants it. Here the fund-of-funds may continue to retain a competitive edge, in the sense that they can sometimes maintain access to strategies that are closed to new direct investment.
3. This is indeed a significant constraint – in practical terms the pace of investment in teams’ resources has been the limiting factor. I would expect the level of advice and information to improve, but only slowly.
4. I envisage little growth in allocation to fund-of-funds and a slow but steady growth in direct allocations to single hedge fund strategies, as pension funds continue to search out returns. At RAB Capital we have a handful of pension funds invested in our hedge fund strategies, but the level of interest and enquiries is on a steady uptrend.

1. UK pension funds are primarily at the initial stages of adoption of hedge funds. The average investment in hedge funds is less than 5% and hence regardless of their performance they are unlikely to have a meaningful impact upon the overall portfolio. Most investments into hedge funds are through funds-of-hedge funds and are added as a diversifying investment to the non-matching part of the scheme’s assets, frequently as a bond substitute.
   Trustees, in general, are still moving up the learning curve in order to get fully comfortable with the various underlying hedge fund strategies within their portfolios.
2. Firstly, the Myners Review “does not seek to promote a particular asset class…[but] concludes that greater diversity of asset allocation policies would be desirable”. The typical reason for hedge fund investment by institutions is that a portfolio of carefully selected hedge funds can generate superior risk-adjusted returns, which are uncorrelated with the remainder of their portfolio.
   Hedge funds would not be suitable to those schemes that are not able or prepared to spend the time sufficient to understand the different types of risks that exist in these alternative investments.
3. We believe that the lack of understanding in the majority of institutional consultants is a serious inhibitor of hedge fund acceptance among pension funds. Given that many hedge fund allocations are primarily decided on the back of past performance figures (without understanding how those returns were generated) then with this quality of advice a degree of caution is probably warranted.
4. Other than greater general acceptance of hedge funds, new balanced mandates are becoming increasingly popular among pension schemes and this trend is likely to continue over the next five years. These portfolios will attempt to reduce the equity bet by combining a variety of other return generating assets (eg private equity, commodities, high yield, etc) and hedge funds will play a part within these mandates.
   Another growth area will be the adoption of hedge funds as part of a liability-driven approach to more closely match the assets of the pension fund to the discounted value of the scheme’s liabilities.

The role of property derivatives in the UK commercial property

market has been overlooked, even though they have been around for years

Colonial First State Global Asset Management has announced Charlie Metcalfe as the new chief executive officer for First State Investments.

Defaqto Group has appointed Rupert Pennant-Rea, former editor of The Economist and former deputy governor of the Bank of England, as chairman.

Managing director of Butterfield Bank, Paul Turtle, is to step down at the end of the month, but will remain a non-executive director.

Mark Stocker has taken up the reins as partner in Lane Clark & Peacock’s (LCP) London actuarial team.