(June 28, 2012) — Investment outsourcing by pension plan sponsors may likely double over the next five years as plan sponsors seek more expertise and faster execution, according to a poll conducted by SEI.
Of the poll participants who are not using a fiduciary manager, 29% said they would likely consider a change to this model within the next five years, potentially more than doubling the use of an outsourced fiduciary manager model by corporate pension plan sponsors by 2017. “As pension plan management becomes more complex, we are seeing a growing demand in the marketplace for outsourced fiduciary management services,” said Kevin Matthews, vice president and managing director at SEI’s Institutional Group. “Working with a fiduciary manager allows plan sponsors to allocate various levels of discretion to an investment partner, whether it be manager research, selection and oversight, or the added layer of discretion over asset allocation decisions.”
According to the poll, the top three drivers for investment outsourcing include:
1. Expert advice across all markets
2. Faster execution on market changes
3. Delegation of tactical decisions to increase focus on strategy
SEI conducted the poll of 50 corporate defined benefit plan sponsors to determine their organizations’ current and future use of a fiduciary manager and their top reasons for outsourcing the investment management of pension plan assets.
When asked out the reasons for investment outsourcing among pensions, investment heads contacted by aiCIO often cite that asset owners are generally not “natural investors.” In other words, corporate pension plan sponsors are responsible for a large pool of money to protect, but they are often not the most skillful with more complex strategies — such as liability-driven investing and risk parity. Outsourcing, then, is a natural evolution of the industry, CIOs often say.
SEI’s study contrasts with a survey conducted by Russell Investments in March, which noted that large funds are shunning outsourced investment. While fiduciary managers and consultants offering investment outsourcing are picking up more business from small to mid-size pension fund investors, they are failing to take ultimate control of the larger funds, Russell’s research found. By the end of 2011, the number of smaller schemes employing a fiduciary manager or outsourcing expert had grown from 15% to 26% since 2009, Russell Investments said in its governance survey.
Related data:aiCIO Investment Outsourcing Survey