Aon Hewitt: One in Five UK Pensions Delegate Investment Decisions

(September 13, 2011) — A new study by Aon Hewitt shows that one-fifth of UK schemes delegate investment decisions to a third-party provider.

According to Aon Hewitt’s 2011 Delegated Investment Survey, 17% of schemes already delegate investment decisionmaking and implementation to an external provider. An additional 8% said they intend to explore opportunities to delegate.

UK head of investment consulting John Rushen said: “As predicted last year, market volatility therefore remains a critical factor for pension schemes. It can erode confidence in the decision being tabled, but then also makes the timing of execution critical. When the market moves several percentage points a day, opportunities to capture value come and go. Market timing requires focus, skill and conviction if the outcome for the scheme is to be positive.”

According to Aon Hewitt’s findings, a mere 8% of respondents cited risk diversification as a key driver in choosing to delegate, largely due to the fact that about 43% of small schemes and 43% of medium schemes are invested in no more than three asset classes.

Additionally, in a separate study conducted in November 2010, Aon Hewitt claimed that time-pressured trustees are unable to spend sufficient time on investment decisions. Spokesman Colin Mayes told aiCIO following the release of the study that the findings of the research should not be perceived as a criticism, but should instead highlight the intense pressure that pension boards are facing and the need for assets to be put to work more effectively.

“Highlighting the results of our research is not intended as a criticism – but a reality check is needed if assets are to be put to work more effectively,” said Zuhair Mohammed, head of delegated consulting at Aon Hewitt, in the research. He explained that continued economic uncertainty and highly volatile financial markets are stretching the already limited resources of most trustee boards to the extreme.

“What is clear from our survey is that the time devoted to investment matters and the level of investment expertise permanently on trustee boards is simply falling short of what is required,” Mohammed stated. He concluded that the mounting challenges faced by DB schemes have undoubtedly placed increasing pressure on pension scheme trustees. “Many schemes are still in negative funding territory and the financial crisis has also weakened the covenant of many sponsors. Putting the assets to work to recoup losses and to improve the funding position has become the priority,” he said.