As August Ends, A Disconnect Between Pension Funds and Asset Managers

(August 17, 2009) – As the summer comes to a close, a new survey shows a disconnect between pension plans and their asset managers.

According to a survey by Citigroup and Principal Global Investors, while almost half of pension plans (both defined benefit and contribution) surveyed rated their asset manager ‘good’ or ‘excellent’, disaggregated scores show a disparity between services. Asset managers performed relative well on stock selection, portfolio construction, and risk management; strategic asset allocation and tactical asset allocation, as well as providing access to new asset classes – at least for the defined benefit world – were rated less positively. Perhaps most discouraging for asset managers, 55% of pension funds rated ‘returns on their investments’ as ‘poor’ or ‘limited’.

Not surprisingly however, asset managers surveyed were more liberal in their praise for their own services. Across the board, asset managers ranked themselves higher – particularly smaller asset managers. The most notable disconnect in perceptions was seen with providing new asset classes. While only 36% of pensions rated this as ‘good’ or ‘excellent’, 74% of asset managers did so.

The survey also showed a similar disconnect between pension plans and consultants. Approximately 50% of pension funds rated the services of consultants as ‘good’ or ‘excellent’, with services such as asset-liability management, investment advice, and performance monitoring praised. However, strategic asset allocation and strategy implementation and selection faired relatively poorly. When asked about the benefits of consultants, asset managers were once again more lenient in their views compared to pension funds.

Overall, the survey shows that pension fund sponsors have four main goals: (1) improving funding levels; (2) dealing with regulatory and accounting changes; (3) seeing good returns; and (4) strengthening their relationship with their sponsors. Though pension funds were likely to look for a holistic approach to meet these goals, asset managers often viewed these goals through a lens of providing individual products, many of which, the survey notes, do not seem to support the underlying worries of the plan sponsors.

Possibly the most striking statistic emerging from this survey is that only 5% of pension funds rated their asset manager as ‘excellent.’ If delighting their pension fund clients is a top priority for asset managers this fall, they clearly have a lot of work ahead.