Arthur said that the truth was that consultancies do not have the resources to analyse the entire DGF market thoroughly. “We have to rely in part on good communication with the managers,” he said.
Brendan McLean, head of manager research with Spence and Partners, a pension fund consultancy, said that the data was often not as granular as he would like, especially for those DGFs specialising in fast-moving Tactical Asset Allocation.McLean said that he concentrated on a handful of strategies. “If there are any doubts in my mind about a strategy, then I exclude it because I can’t take unnecessary risks with client money.”
Woodacre said that Buck typically won’t look at a strategy without a three-year track record unless a team can demonstrate the same integral strategy at a previous firm.
What’s the asset owners’ perspective? Mike Nixon is head of pensions at Leonardo, manufacturer of defence electronics and helicopters, which has two DB schemes closed to accrual and one open DC scheme.
All three have been managed using dynamic allocation but via a fiduciary manager, with a track record of 14 years. Nixon said the trustees had learned to trust the manager over time. “We as trustees do not have any special expertise in making detailed asset allocation decisions or selecting underlying managers but can make a real difference at the strategic level.”
He said the board were kept up-to-speed by numerous benchmarks, including long-term liability and short-term static asset benchmarks as well as peer comparisons. But the test that really mattered, according to Nixon, was the three-year scheme valuation because that is when everything comes together.