Time for the new in pensions shake-up
Thursday 3 July 2008
Whilst Barry Riley of the FT is writing about pensions, he is really writing about how money should be managed. It applies to everyone.
The first statement he makes is, “In the current transitional stage the big winners are passive managers and asset liability product providers: FTfm’s 2007 table of UK pension fund managers published on June 9 was headed by Legal and General, Barclays Global Investors, Insight and State Street.”
Whilst we have known so for some time why this is the case, most investors still do not recognise these facts. It is understandable because traditional investment management firms, stockbrokers and many financial advisers don’t want you to know these facts. It would put them out of business! Instead they want to talk to you about something that keeps them in business. But take a leaf of these pension managers’ books and go passive.
I know passive is boring, and so is the appeal of buying and selling, winning (but not losing) is attractive. But as Riley states; “High-risk, high-return strategies abound but have only limited credibility and appeal. The history of mutual fund investment gives a clear warning that actively-minded individuals are drawn irresistibly into chasing trends and fashions if they are given a free choice. Returns in the long run are damaged.”
He continues, “The shake-up in pensions is inevitable: in a very real sense, fund managers’ bluff has been called. Since 2000, risk has failed to generate enough return. Too many high-return mandates – benchmark plus 3 per cent, say – have been signed and too many clients have subsequently been disappointed. On average, after costs, alpha is by definition negative and the pensions sector is quite logically retreating to a beta-driven and liability matching strategy.”
As an investor, alpha and beta may be nonsense, but we would encourage you to find out a little more about them. Most investors by default are searching for alpha (excess return put very simplistically)…but many are not capturing it. If the leading pension funds managing billions can’t find it consistently, what chance have you got with £100,000, £500,000 or even £10m!
Categories: Asset Class Management, ETF's, Index Funds
posted by Murray Round Wealth Management @ 12:02,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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