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The Actuary The magazine of the Institute & Faculty of Actuaries

A fifth of UK pension schemes delegate investment task

Aon Hewitt's 2011 Delegated Investment Survey found 17% of schemes already delegate investment decision-making and implementation to an external provider - and a further 8% said they intend to explore opportunities to delegate.

The consultant said the trend had been driven by continued market turbulence after 40% of respondents said speed of investment decision making and investment implementation were the priority drivers of delegation.

This shows a significant change since 2010's report when 46% of respondents cited trustee knowledge and understanding as the primary driver to delegation.

Aon Hewitt also noted last year's survey showed a quarter of respondents wanted to delegate investment decisions in one of the three key areas of asset allocation, swaps and manager selection.

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."

The survey of 299 pension trustees and pension managers also revealed the frequency of trustee meetings, the time resource available for dedicating to investment issues and matters relating to governance structures all affected scheme agility, according to the schemes asked.

Elsewhere, just 8% of respondents cited risk diversification as a key driver in choosing to delegate, owing to the fact that some 43% of small schemes and 43% of medium schemes are invested in no more than three asset classes.

Rushen added: "It is true that governance structures can stymie a scheme's ability to act swiftly on investment irrespective of trustee commitment and the complexity of today's investment landscape is felt to compound the issue. But, the opportunity cost of sluggish execution is only heightened by periods of significant market volatility, such as we are currently seeing."