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Are active asset managers finally getting to grips with DC?
Author Henry Tapper for AgeWage Posted on July 15, 2021 07:58
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At a recent DC investment forum run by Professional Pensions, Andrew Brown of Columbia Threadneedle asserted that DC fiduciaries need to use the market shock of the pandemic to test the resilience of their DC default strategies.

I’ve got good news for Andrew, and he might like to be in touch! The good news is that we’ve been doing precisely this work for fund managers and I’ve permission from one of them to share the results.

PineBridge wanted to stress test one of their strategies to understand the ‘real’ impact for DC investors.



What do I mean by stress testing?


The stress for members of DC funds is about getting rubbish results from their saving. Most savers are aware that their money is earning them money but don’t have much clue beyond that.


When the markets crash, as they did in March and April of 2020, people understand that this may impact their retirement savings.


People would like to be told how well their savings have done but they have no information that explains to them what their reasonable expectations should be, or whether they have done well or badly relative to those expectations.


But they don’t get that kind of information either on their benefit statements or any other kind of medium. There is no independent source to go to for this information, no league tables, no value for money statements from independent sources.


People would like to know how their funds perform in good times, and in bad and they want that information delivered to them in a user-friendly way. That does not mean a complex fact-sheet littered with percentages and information that they neither need or want.


They want to know how their investment performed and fact sheets don’t tell you that, they just give you an abstract number- no context and no sense of whether you are doing well or badly.


It is hardly surprising that most members of workplace pension schemes are totally uninterested in what happens to their money. Imagine an estate agent that advertised house without telling people the price. That’s how members feel when presented with the reporting we give them.


If we want to rid members of stress, let’s start by being honest about how their savings are getting along.



Case study – what PineBridge did.

PineBridge Investments is a private, global asset manager focused on active, high conviction investing that is increasingly interested in the DC space. They came to us looking for an alternative way to demonstrate their proposition than the usual macro measures of performance, net performance and risk-adjusted performance. Our brief was to show them how the PineBridge Global Dynamic Asset Allocation Fund Awould work in a world where people make regular and occasional saving, regular and occasional withdrawals – from their pension pot.


This struck as pretty brave and we warned them that the results of our work may be disheartening. Because we do our testing using real people’s saving histories, our results are “real world” and are measured against the returns the average saver in the real world achieve. This has resulted in some unpleasant news for some fund managers and for many trustees, who found they were delivering outcomes that didn’t quite match the expectations that their fact sheets and institutional reporting might have predicted.


We asked for and got from PineBridge, the actual price track of the fund they were looking at and we invested a sample of 10,000 contribution histories of the 2.5m we have analysed. Some of these histories were for those building up money and some for those withdrawing money to pay for the activities of their daily living. Some of the histories were for people who had stopped saving, some for those with paying special contributions and some for people who were taking large lump sums at a single time (including cashing-out).


Once we had measured how the fund had done for these 10,000 savers, we were able to give each saver an independent rate of return and compare that return with the return they’d got if they’d invested into a bog-standard fund (in this case the Morningstar Pension Index).


The results were encouraging. We discovered that the approach the asset manager was taking was quite distinct over any other fund we had analysed. AgeWage has analysed over 70 funds within DC default strategies It had proved resilient to not just the 2020 market turbulence but to other periods of market volatility for default funds.

We were also able to show PineBridge the impact on member outcomes of hedging currencies prior to the Brexit vote (not such a good story). Because we were using real contributions in real world money, we were able to show in pounds shillings and pence where value had been created and lost. We were able to show how the fund had delivered value in terms of the risk taken and what it would have done for our pot-holders who were drawing down from their pot (as well as those paying into it).



Three positive outcomes of stress testing

  1. Clarify to PineBridge where they were making savers money relative to the market
  2. Help fund managers understand the impact of their decisions on member outcomes.
  3. Highlight to trustees, other fiduciaries – and their advisers what sets PineBridge’s fund apart.


It is not for me to reveal the results, that is for PineBridge. However our work indicates that PineBridge are now closer to the impact of fund management on member outcomes than they have been before.


I hope this insight will enable trustees to look at the importance of good outcomes and fund managers to consider in real terms what members actually get from their products.


The DWP are demanding a greater focus on member outcomes and I’m pleased to see firms such as PineBridge and Columbia Threadneedle thinking about their work with this kind of granularity.


With the recent publication of the FCA’s Assessment of Authorised Fund Manager’s value statements  it is clear that many AFMs could do with following suit.