Pension fund managers are failing their clients by slavishly replicating inappropriate benchmarks, c...
Pension fund managers are failing their clients by slavishly replicating inappropriate benchmarks, claims Hewitt Bacon & Woodrow (HBW).
Anthony Ashton, head of UK investment at HBW, said the present method of establishing benchmarks is overly reliant on bond indices, which do not take account of the duration of a fund's liabilities and, as such, have no hope of creating the desired cashflows when required.
He added: 'Bond portfolio managers must upgrade their services so the fund is managed in a way that is more relevant to the liability needs of pension funds.
'Corporate bonds and other instruments such as swaps need to be considered regularly and actively as a way of managing risk.'
The majority of fund managers have not yet developed the products and capabilities needed to keep pace with changing needs of trustees, according to HBW.
The group said trustees see the risk against their liabilities as far more important than the risk against a benchmark and need a more transparent approach to managing these risks, which require different capabilities and practices.
The group suggested fund management groups should invest substantially in their bond management operations to ensure they are flexible enough to provide the skills necessary to manage a large fixed income portfolio.
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