Institutional Asset Manager Newsletter 13.10.23

Endgame planning for pensions comes into sharper focus

The UK pension market continues to bolster its coffers as gilt yields rise, according to figures from the Pension Protection Fund (PPF) - the compensation scheme for defunct defined benefit (DB) plans - which reports an increase in surplus of GBP44.6 billion over the month to end of September.
This represents a funding ratio of 147.5 per cent and according to Shalin Bhagwan, PPF Chief Actuary, brings the "endgame planning into sharper focus for many schemes, something that is already reflected in the buyout market, which is on track for a record year."
However, Bhagwan warns that while the market, in its current state, "appears to be conducive for innovation and attracting new entrants", buyout may "not be an appropriate or achievable endgame for a significant number of DB pension schemes."
This view is reflected by Van Lanschot Kempen Investment Management, the Anglo-Dutch investment and fiduciary manager, which says a GBP1 billion DB scheme could lose up to GBP250 million in value by defaulting to buy-out.
Van Lanschot Kempen calculates that the value loss of exiting to insurance buy-out for a GBP1 billion DB scheme is projected to be up to GBP200 million over the next decade, while de-risking towards buy-out could add an estimated GBP50 million in missed returns over the same period.
The firm, which has just launched a new fiduciary management service and therefore has some vested interests in keeping DB plans active, says running on a GBP1 billion DB pension scheme could generate a surplus of GBP250 million over the next 10 years "which can be redeployed to benefit members, trustees, sponsors, intra-generational divides and wider society".
This may explain part of the trend to outsourced CIO (OCIO) models which have been increasingly favoured by DB fund giants in recent months.
This week we hear from Toby Goodworth, Managing Director, Head of Liquid Markets at Bfinance, who says that rather than opt for buyout, trustees are looking at passing investment management governance to third parties – some of whom are specialists, but many are large asset managers or investment consultants.
However, opting for OCIO or FM models is not without complexity and while they might offer better value for money for some schemes, they come with governance complexities.
Elsewhere, we bring positive news for electronic marketplace operator Tradeweb Markets which reports total trading volume for September 2023 of USD31.8 trillion. Average daily volume (ADV) for the month was a record USD1.57 trillion, an increase of 30.8 per cent year-over-year (YoY). For the third quarter of 2023, total trading volume was USD90.4 trillion and ADV was a record USD1.42 trillion, an increase of 29.6 per cent YoY, with preliminary average variable fees per million dollars of volume traded of USD2.51.
Voting is still open for the Institutional Asset Manager Service Provider Awards 2023.
To vote for your chosen companies, click here. Voting closes on 20th October.
Gill Wadsworth, Editor
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