DC Participants Record Little Investment Responsibility

An AllianceBernstein survey showed DC participants in the UK felt only slightly accountable for their pension investments and were vague on their retirement dates.

(December 2, 2013) — Defined contribution (DC) plans’ menus may be moot points, as a survey has shown participants rarely use them.

AllianceBernstein’s poll revealed that almost half of 500 UK respondents have never made a change in their DC investments and 22% said they do not believe it is their responsibility.

“These findings provide a clear reminder that the majority of savers are not engaged when it comes to saving for retirement,” said David Hutchins, AllianceBertstein pension strategies head.

Furthermore, 41% of respondents said they believe monitoring their investments once every six months was adequate. More than half said they pay little attention to notices regarding their DC plans from their providers.

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Such lack of responsibility extended to participants’ prospective retirement dates.

The survey found 73% of respondents had no or only a vague idea on when they will retire. More than half of participants over the age of 55 were unsure of their retirement dates as well.

“As peoples’ retirement plans change, through early retirement or delaying full retirement beyond state retirement age, employers and trustees must ensure their chosen investment strategy is flexible enough to adapt to their changing needs,” Tim Banks, pension strategies managing director at AllianceBernstein, said.

Though the majority of DC funds are organized around a fixed retirement date chosen by current employees, the survey suggested the approach might not be suitable for some participants.

“In order to meet today’s working environment, default investment strategies need to offer flexibility around members’ retirement dates, and provide for a smoother, more gradual de-risking process as they grow older,” Banks said.

In a white paper, Russell Investments echoed Banks and stated that fiduciaries must be more diligent and take on more responsibility in managing DC plans due to many participants’ inexperience in investing: “Most are really looking for their plan sponsor fiduciaries to provide prudent, appropriate investment options that give them the best chance of meeting their retirement income needs.”

The asset management firm suggested plan sponsors divest from mutual funds and move towards separate accounts and commingled funds to better ensure members’ futures.

(December 2, 2013) — Institutional investors are increasingly demanding hedge fund managers run non-traditional hedge fund products and even their long only portfolios, according to a survey by Deutsche Bank.

This trend is in line with a central change in the way investors construct their portfolios: “Investors are moving away from ‘traditional’ asset allocation in favor of a ‘risk-based’ approach,” the report said. This shift pointed to a merging of alternatives into the core portfolio, thereby encouraging hedge fund managers to step into traditional asset managers’ roles.

The result was a forging of a stronger bond between clients and hedge funds with managers branching out further for opportunities in liquid alternatives, including alternative 40 Act mutual funds and alternative UCITS funds.

Deutsche Bank found that among the 200 global institutional investors surveyed—with $1.9 trillion in total assets under management (AUM)—more than half already allocated to non-traditional hedge fund products. Of these, 36% invested in long-only strategies and another third in liquid alternatives run by hedge fund managers. A little less than half said they plan to increase their allocations over the next 12 months.

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“As institutional investors become ever more comfortable with hedge funds and other alternative investment managers, they will increasingly seek out trusted hedge fund partners to help run not only their alternatives exposure, but their long only portfolios as well,” the report said.

This phenomenon was especially true for large, well-established managers: 81% of managers with more than $5 billion in AUM have already established at least one non-traditional hedge fund product.

But this idea is not new. More than three-quarters (77%) of managers reported having three years of experience managing these strategies, including 40% with backgrounds stretching more than a decade.

“Managers with extensive resources, experience and brand loyalty are well-placed to respond to growing client demand for bespoke products,” the report said.

The survey found clients’ requests were the key factor for hedge fund managers to step outside their regular roles. More than a quarter of investors reported to have asked a hedge fund to run a separately managed long-only or liquid alternatives vehicle—30% said they are considering diversifying their business.

However, managers will have to overcome the challenge of raising assets for non-traditional products, Deutsche Bank said, when moving into mainstream asset management.

Investors, on the other hand, said increased liquidity was the largest reason for investing in alternatives and regarded ‘manager skill and expertise’ as the most appealing aspect of having a hedge fund allocate their long only portfolios.

“With a variety of new growth channels, we expect hedge funds to become an ever more formidable part of the wider asset management industry in the years to come,” the report said.