XPS Fiduciary Manager Review reveals wide divergence in investment performance linked to exposure to illiquid assets
XPS Fiduciary Manager Review reveals wide divergence in investment performance linked to exposure to illiquid assets
30 Apr 2024
- All fiduciary managers (FMs) delivered positive returns, but a 12.9% gap between the highest and lowest-performing
- FMs more exposed to illiquid assets had lower absolute returns
- Majority of FM growth portfolios underperformed their target returns, some by 3% or more.
There was a wide degree of divergence between the investment performance of fiduciary managers in the pensions industry across 2023, research from XPS Pensions Group has found.
A survey of 20 growth portfolios managed by 17 FMs over 2023 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. 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.
There was also a clear 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 direct contrast to the experience of FMs 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, Partner at XPS Pensions Group, 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”.
Methodology:
XPS surveyed 17 fiduciary managers, representing over £480 billion of pension scheme assets, during 2023.