‘Large majority’ of FMs achieve outperformance targets amid favourable conditions

A large majority of fiduciary managers (FM) achieved their outperformance targets over 2021, according to analysis by Barnett Waddingham (BW).

However, the consultancy said this was unsurprising due to the market environment in which risk was well rewarded and, relative to their peers, very few managers consistently produced ‘top-half’ performances year-on-year.

Amid rising equity markets and falling liability values, BW said it was expected to see FMs outperform their objectives last year and there were very few cases where managers did not achieve their targets.

It found that all FMs reported equities among their top contributors, thanks mainly to global market indices rising by more than 20 per cent.

BW questioned whether, in such a buoyant market, simply meeting targets was good enough and if pension schemes should be wanting more from their FMs.

Its analysis also found that the longer-term performance of FMs was ahead of target in most cases, although when it considered returns on a risk-adjusted basis, few managers produced ‘meaningfully’ better returns than could have been achieved through using a relatively simple portfolio outside of fiduciary management.

BW also highlighted the importance of other key measures of FM performance, particularly in developing areas of advisory and reporting services, ESG and stewardship integration, and fee levels.

BW head of FM evaluation, Peter Daniels, commented: “2021 was a very positive year for the financial position of many pension funds.

“We have seen this play out, not only by strong investment returns, but through the high levels of de-risking activity which took place. Given this strong backdrop, it is important for pension funds to look at their managers’ performance through multiple lenses to form a robust view.

“Looking forward, if the start of 2022 is anything to go by, markets are likely to be in for a rougher ride this year. Inflationary pressures are creating notable challenges in the management of both growth and liability hedging assets.

“The ability of managers to navigate this volatility will be key to delivering against their performance targets this year.”

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