This happened despite the majority of managers pursuing more complex multi-asset strategies, a new study by XPS Pensions Group has found.
A separate study by Barnett Waddingham found that equity market performance led to an improvement in funding levels, which in turn allowed the recent trend towards de-risking to continue
XPS’ 2022 Fiduciary Manager Review found that while equities made up less than 50 percent of most fiduciary managers’ portfolios, the asset class was by far the largest contributor to managers’ returns over the year.
More complex allocations such as hedge fund strategies did little to enhance returns.
70% of fiduciary managers outperformed the Diversified Growth Fund’s median average returns, while 30% underperformed the benchmark.
According to XPS, there was an 8 percent gap between the highest- and lowest-yielding growth portfolios.
André Kerr, Head of Trusteeship at XPS Investment, said: “Markets can change quickly. So far this year, the war in Ukraine in particular has led to significant volatility and a drop in equity valuations.
“Given the asset allocations expected for 2022, portfolios may already have performed very differently over the last four months than in 2021, depending on the trustee in question.
“We want to encourage trustees not to be complacent and challenge their managers to ensure that significant value is expected from all parts of their portfolios.”
BW’s own investigation challenged systems to demand more from their investment managers.
It found that on a risk-adjusted basis, few managers “achieved significantly better returns than would have been achieved with a relatively simple portfolio outside of fiduciary management.”
BW added, “In such a buoyant market, the question is whether simply hitting targets is enough, or whether pension systems should be asking more of their managers.”
Compared to their fiduciary management peers, very few managers consistently produce a “top-half” performance year after year, the results show.
Peter Daniels, Head of FM Evaluation at BW, said that given the strong equity market environment, “it’s important for pension funds to look at their managers’ performance from multiple angles to get a solid picture.”
“Looking ahead, as the start of 2022 winds down, markets are likely to experience a rougher ride this year,” he said.
“Inflationary pressures create notable challenges in managing both growth and liability hedges. Managers’ ability to handle this volatility will be key to meeting their performance targets this year.”