Fiduciary manager (FM) growth portfolio performance varied widely throughout 2022, with analysis from XPS Pensions Group revealing a 13 per cent difference between the highest and lowest returning growth portfolios.

The survey, which gathered data on the performance of 18 growth portfolios managed by 15 FMs over 2022, found that although all fiduciary managers bar one posted negative returns, the asset allocation within their funds led to a wide range in performance across the year.

In particular, funds from FMs that were most exposed to equity and fixed income were amongst those with the lowest returns across 2022, performing worse than approaches with more complex and illiquid asset exposure.

XPS Pensions Group also pointed out that the unusual pattern of simultaneous losses in both equities and fixed income seen throughout 2022 reversed the recent trend of FMs’ portfolios rising on the back of strong equity performance.

By contrast, FMs with portfolios that featured more illiquid assets fared better throughout the year, with higher net returns and lower volatility.

However, XPS noted that pension schemes who use these managers were more exposed during the liability-driven investment (LDI) crisis of October 2022, when managers may have struggled to meet collateral calls, potentially reducing the level of hedging and exposing pension schemes to unhedged losses and haircuts on sold assets.

Despite the wide variation in growth portfolio performance, the analysis showed that FMs still largely outperformed the median returns of Diversified Growth Funds over the year, with only 5 funds underperforming this benchmark, while over 50 per cent of the funds examined outperformed the upper quartile of all Diversified Growth Fund returns.

Commenting on the findings, XPS Pensions Group partner, Andre Kerr, stated: “The performance of fiduciary managers over 2022 shows that there is no ’silver bullet’ to guarantee investment performance.

"Whilst complexity and illiquidity can be a good diversifier of returns and reduce volatility, it can also create other risks, such as during the LDI liquidity when some fiduciary managers had insufficient liquidity to meet the LDI collateral calls.

“Trustees should monitor their investment arrangements closely and feel empowered to challenge their fiduciary managers if they feel the arrangements do not align with their scheme’s goals.”

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