Pension consolidation forcing ‘smaller players’ out of market – Cerulli

Pension consolidation is beginning to force smaller-sized asset and fiduciary managers out of the market as competition increases, according to research from Cerulli Associates.

As reported by our sister publication, European Pensions, Cerulli's study, European Institutional Dynamics 2019: Addressable opportunities for asset management, found that consolidation in the Netherlands had already led to more competition, higher fee pressure and a “knock-on effect within fiduciary and asset management that has seen some smaller players forced to leave the market”.

It also found that a similar process was currently underway in Switzerland and the UK.

Furthermore, although it is expected that consolidation will eventually lead schemes to bring more assets in-house, Cerulli had not found any trend for increased insourcing or outsourcing to date.

Commenting on the findings, Cerulli European institutional research team associate director, Justina Deveikyte, said: “The UK pension industry is becoming more competitive for asset managers due to the pooling of the local government pension schemes, the rise of defined benefit aggregators and DC master trusts, and the increased use of fiduciary managers.

“However, these changes are creating opportunities. For example, fiduciary managers are more willing to invest in niche asset classes than small and mid-sized pension schemes. And in the DC space, the master trusts will be able to drive much-needed innovation, such as the ability to include a broader range of asset classes in default funds.”

When surveyed, European pension schemes said that strong performance is a “very important” attribute when selecting a manager, while more than half emphasised the importance of risk management, transparency and the ability to meet reporting requirements.

Additionally, pension schemes are evaluating the asset classes that they invest in to try and meet the obligations in a low interest rate environment.

Across Europe, 18.8 per cent of pension schemes that Cerulli surveyed planned to increase their investment in infrastructure debt and 7.5 per cent intended to allocate more to investment-grade bonds.

German pension schemes were found to be the most interested in investment-grade and high-yield bonds, whereas UK schemes plan to invest more in infrastructure and multi-asset.

In contrast, 7.5 per cent of the European pension schemes that we surveyed reported that they plan to divest from hedge funds. This trend is mainly driven by investor sentiment in the UK and Switzerland.

Bank loans and collateralised loan obligations have also fallen out of favour, with 5 per cent of respondents planning to decrease their allocation to the asset class and only 3.8 per cent intending to invest more.

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