Pensions fiduciary managers experienced a wide variation in investment performance across 2023 despite markets performing well, according to a study.
The survey of 20 growth portfolios managed by 17 fiduciary managers, representing over £480 billion of pension scheme assets, found that although all portfolios made positive returns, there was a gap of 12.9% between the highest (+13.4%) and lowest-performing (+0.5%) portfolios.
XPS Pension Group’s Fiduciary Manager Review found that only one fiduciary manager outperformed a traditional 60/40 portfolio across the year, and some underperformed their targets by 3% or more, the research found.
The study also established a link to illiquid allocations and lower absolute returns. The portfolios that were most exposed to illiquid assets like infrastructure and real estate were most likely to see lower returns.
This was in contrast to the experience of fiduciary managers in 2022, when illiquid assets drove higher returns, and 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. The typical global equity portfolio returned 15.7% across the same period.
André Kerr, a partner at XPS, said: “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.”
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