The impact of the coronavirus on markets and pension funding levels could push more U.K. trustees down the outsourced CIO route in the future, particularly as sources expect these funds to have outperformed non-OCIO arrangements in the quarter ended March 31.
Pension funds across the globe have suffered from falling equity markets, leaving trustee boards in a quandary about whether they should shift their portfolios to safety or take more risk. Trustees able to make and execute on decisions quickly and across the entire portfolio — largely through OCIO arrangements — would have done better than those depending on trustee board meetings and subsequent requests to third-party money managers to make such changes, sources said. There would also have been varied performance among OCIOs themselves.
"Performance-wise, it is almost inevitable that fiduciary management clients will have outperformed the advisory clients," said Roger Brown, founder and director at of IC Select Ltd. in Edinburgh, which helps retirement plans evaluate and choose investment consultants and OCIOs. "The reason is fiduciary management portfolios typically have higher hedging levels — at 90% to 100% — and they do have greater diversification. And equally, they can react more quickly than others; in early February when (investors) started to wake up to (the market situation), they made changes to the portfolio, which no advisory client could do so quickly. This first quarter, I'm pretty sure the impact on fiduciary management clients will have been much less" than on advisory.