Fiduciary managers (FM) saw modest growth in mandates within the defined benefit (DB) market over the past year, although FM assets under management (AUM) saw a "significant boost", according to a report into the latest fiduciary sector trends published by Isio.

The report found that mandates increased by around 1 per cent in the year leading to June (partial mandates grew by 0.4 per cent, while full fiduciary mandates rose by 1.2 per cent), although assets under management (AUM) grew by around 20 per cent, thanks to positive performance in growth assets and high gilt yields.

While investment markets have stabilised since the 2022 bond crisis, shifting requirements for DB schemes are placing new pressures on fiduciary managers, Isio said.

DB schemes are increasingly well-funded, and therefore seek lower-risk investment strategies, but they must nonetheless strike a balance between growth and derisking. As a result, fiduciary managers are refining their risk management and governance strategies, said Isio.

According to the report, governance standards have been strengthened across the fiduciary market. More than a third (34 per cent) of fully delegated mandates are now overseen by independent advisers, up from 22 per cent in 2020.

Around two thirds have a third-party evaluator (TPE), while independent evaluations are being carried out more frequently – 38 per cent report quarterly, and the same proportion report annually.

Less than a quarter report on an ad hoc or triennial basis. What’s more, 58 per cent of schemes now employ professional trustees.

Investment strategies are continuing to evolve. More than a third of fully funded fiduciary mandates are now more than 100 per cent funded, thanks to the performance of growth assets and increases in gilt yields, and DB schemes have moved towards derisking, higher hedging targets and insurance transactions.

More than half of fiduciary mandates are targeting returns of liabilities plus 1.5 per cent, leading fiduciary managers towards a different range of assets, including alternative credit and cashflow-driven investment.

Commenting on the report, Isio’s partner and head of fiduciary management oversight, Paula Champion, said: “The industry faces both new demands and shifting dynamics that reflect the maturing landscape of UK DB pensions.

"The AUM growth of 20 per cent this year highlights how large outsourced chief investment office (OCIO) mandates are reshaping the market, yet a slowdown in mandate growth suggests a greater emphasis on derisking and simplified strategies for well-funded schemes.

“This pivot brings governance to the forefront. Trustees are increasingly turning to independent advisors and third-party evaluators to ensure robust oversight, with 34 per cent of fully delegated mandates now under independent review.”

Champion added: “As regulatory pressures drive schemes to formalise endgame objectives, fiduciary managers are poised to play a crucial role in preparing schemes for insurer-ready transitions, reinforcing their value in an increasingly complex environment.”

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