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Trustee Research: Mind The [knowledge] Gap

The challenges and constraints professional trustees face today.

by
Charles Stanley

in Fiduciary news

15.09.2021

In an exclusive survey of professional trustees conducted by Censuswide on behalf of Charles Stanley Fiduciary Management, trustees revealed that:

Almost half of professional DB trustees revealed that their appetite for investment risk overall has increased since pre-pandemic
Trustees favour taking more interest rate and inflation risk (73%) but also want to increase equity risk (49%) and credit risk (60%)
Yet 40% say a lack of confidence in their investment knowledge limits their risk taking, and 78% claim that regulation is stifling their investment approach

 

Risk on the rise

The study of 55 professional trustees of UK DB pension funds with an average AUM of £302m was completed in August 2021 and considered a broad cross spectrum of professional trustees (Less than £100m – 9%, £100m-£249m – 42%, £250m-£499m – 38%, £500m-£999m – 11%). Among the key findings was the desire of trustees to take investment risk. Appetite for Equity risk has risen among almost half (49%), with almost a quarter (22%) saying that their appetite has ‘increased significantly’. Appetite for interest rate risk has increased among 75%, inflation risk 73%, and credit risk 60%.

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A trustee paradox

However, this risk appetite is not mirrored in their investment decisions. For example, only around a third of professional DB trustees (36%) are more likely to increase equity exposure than they were pre-pandemic.
The findings reveal that trustees would prefer to increase risk through tactical under-hedging of their liabilities - implying that they believe long-term interest rates are more likely to rise than fall.

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Bob Campion, Senior Portfolio Manager, Charles Stanley Fiduciary Management said: “These results reveal the trustees’ paradox. On the one hand trustees want to take more equity risk, but on the other hand they don’t plan to invest more in equities. Similarly, while they want to take interest rate risk, are they prepared to relax hedging constraints? What is clear is that trustees need expert help in assessing risk, understanding what ‘risk budgeting’ means for a pension scheme and deciding from all the options available to them.

“Professional trustees shouldn’t feel as if they have to be investment experts – but they do need to work with dedicated experts they can trust. Deploying risk in the right way is a vital decision for any pension scheme. And while the results will only be known in hindsight, the good news is that trustees of any scheme now have access to dedicated experts and analysis to help craft the right strategy for their pension scheme by working with fiduciary managers like Charles Stanley.

“We believe in the merits of equity markets as a long-term driver of returns – and that under-hedging can add value where risk budgets allow, particularly for pension schemes with distant funding targets. By helping trustees to understand risk properly we routinely support our clients to set and achieve sensible long-term funding plans by balancing all the risks they run.”

To receive the full research report, launching in October, register your details here.

 

Source: Charles Stanley / Censuswide. Research was carried by Censuswide among 55 professional trustees of UK DB pension funds. The survey was completed between 21/07/2021 – 04/08/2021.

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The value of investments can fall as well as rise. Investors may get back less than invested. Charles Stanley & Co. Limited are authorised and regulated by the Financial Conduct Authority.

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