Pensions - Articles - FTSE falls will test mettle of pension scheme managers

 Brian Spence, at Spence and Partners said: “The move of the FTSE into bear market territory represents a near inevitable bursting of a bubble of unsustainable market values fuelled by multiple rounds of QE.

 “There will be an impact on DB schemes and it will be extremely varied. Those schemes who matched their liabilities with well diversified long bond portfolios probably have little to fear but where very substantial equity allocations remain deficits will soar.

 Many trustees have moved away from equity funds into multi-asset – the bear market will be a real test of fund manager skills in delivering positive returns irrespective of the underlying market trend. We believe that many managers may not succeed in meeting their return objective in these conditions. However, we would be concerned with trustees making asset allocation decisions based on short term volatility.

 "The question now, is: how are returns achieved going forwards? Pension schemes may well need to look more closely at picking up the illiquidity premium through asset classes such as infrastructure and private markets; have a greater reliance on manager skill; and also increase diversification in their portfolios.

 “These tumultuous markets will also be a test for the explosion of DC savings and the Auto Enrolment agenda. Expect members of DC pension schemes to challenge trustees on their choice of default funds if they are not generating positive returns.”