Over the past 12 months, cyber risk has leapt up the agenda of pension schemes and sponsors, and is one of the most rapidly evolving issues that schemes face. With large volumes of personal and financial data processed within a relatively less sophisticated security environment, in comparison to other financial institutions, it is only a matter of time before pension schemes start to attract more explicit attention from cyber criminals.
The extensive infrastructure policies, such as the UK government’s commitment to a target £100 billion in infrastructure projects by 2020-21 and the U.S. administration’s infrastructure programme, has grabbed investor attentions.
The exponential rise of technology over the last 10 years has led to an explosion in the volume of data – from social media posts to location tracking apps on smart phones, data has now become a commodity in its own right. This paper looks at how big data is playing an increasingly important role within the asset management industry.
In this edition, we look at the DWP’s consultation on trustees’ duties, further developments by the European Commission as it works to implement its sustainable finance action plan and His Royal Highness, The Prince of Wales’ Finance Leaders Summit organised by the Accounting for Sustainability Project.
Aon has developed an Environmental, Social and Governance (ESG) rating system for buy-rated investment strategies which is designed to assess whether and how well investment managers integrate Responsible Investment (RI), and more specifically ESG considerations, into their investment decision making process.
Aon's response to the Department for Work & Pensions (DWP) consultation on clarifying and strengthening trustees' investment duties, including the draft Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2018 (the Regulations).
New banking regulations brought about by the financial crisis in 2008 resulted in banks being forced to take measures to repair their balance sheets and improve their capital ratios. Bank Capital Relief emerged as a strategy to address this issue. The strategy has features which make it attractive to pension funds seeking alternative sources of income.
This paper serves as an introduction to the Bank Capital Relief strategy and provides clients with our key thoughts and conclusions.
Tapan Datta explores the implications of trade wars in this paper.
In this edition, we look at regulatory and political developments around responsible investment, including consultations by the UK Parliament, the DWP and the European Commission. We also discuss the proposed updates to the UK’s Corporate Governance Code and introduce our new climate change projection scenarios.
Fixed income is the new frontier for factor investing. Pursuing value, momentum, quality or low volatility strategies in bond and credit markets is yet to reach the levels of popularity enjoyed on the equity side of portfolios.
Everyone wants value for their money. But you can’t assess this if you don’t understand the true cost of your investments.
Securitised credit strategies are often overlooked in favour of traditional credit markets; however we believe there are a number of key benefits by investing in securitised credit. This paper provides an overview of the benefits of the securitisation process and why it is an attractive asset class for investors to consider.
In the current low-return environment it is important for your investment strategy to actively seek return. This is more than a debate about active versus passive management. Aon addresses issues such as asset allocation, investment managers, operational due diligence, governance, responsible investing, fees, risk management and being active. Download your copy today to find out more and see how you can become more active in seeking returns.
John Belgrove, Senior Partner at Aon, contributed to an ESG roundtable with Portfolio Institutional where ESG-led investment was discussed. The write-up was first published with Portfolio Institutional in the April/May issue.
Factor investing has experienced a sharp rise in prominence in recent years. Commonly called “smart beta”, many clients are looking at the best way to invest in this area of equities, but are often quite rightly confused by the plethora of options and approaches. Building on extensive previous work, Aon has embarked upon an in depth project to answer these questions and this paper provides clients with the key conclusions and our recommendations.
Institutional investors are increasingly considering sustainability issues when constructing their portfolios, with industry bodies such as the Pensions Regulator, Association of Member Nominated Trustees, and the Institute and Faculty of Actuaries actively taking an interest in this area.
Globally, investors are beginning to acknowledge that nonfinancial risks may have a meaningful impact on long-term financial performance.
ILS funds earn premiums for insuring natural catastrophes such as storms, earthquakes and floods, and man-made disasters such as marine and aviation calamities.
There is considerable debate in the UK pensions industry as to whether the “gilts plus” valuation method remains appropriate for valuing Defined Benefit pension schemes in current market conditions.
In this paper we provide further insight into achieving “style” diversification, in particular, the role that factor investing can play in improving your equity portfolio.
Alternative Risk Premia ("ARP") strategies have risen to prominence in recent years as investors seek increased diversification and non-traditional sources of return.
John Belgrove, Senior Partner at Aon, sat on a Global Equities Roundtable with Portfolio Institutional to discuss the pros and cons of building a global equity portfolio. The write-up was first published with Portfolio Institutional in the January issue.
Tim Manuel at Aon contributes to a panel of ESG experts on what they are expecting to see in this market in the next 12 months. This article first appeared in Portfolio Institutional in their January issue.
Investment management fees are highly relevant to portfolio performance. Making portfolios more fee-efficient is not just about reducing existing fees. It is also about ensuring you are paying for things that add value, and not paying for things that don’t.
There are a wide range of assets that can be considered as CDI. Trustees’ preference for the type of assets they may wish to include in a portfolio will be determined by multiple priorities, including; the required return, liquidity and time horizon, as well as the trustees’ beliefs and other objectives.
A key responsibility of trustees is meeting members’ benefits when they fall due. As pension schemes have matured, many are now cashflow negative, meaning outgo outweighs contributions. Furthermore, the cashflows relating to pension schemes’ assets and liabilities are also becoming increasingly unpredictable. In these circumstances, trustees should have a well thought out cashflow management strategy.
As schemes become more mature, trustees and employers are increasingly looking to agree the ultimate destination of their scheme. In most circumstances this is an objective beyond 100% on a technical provisions discount rate. These goals are typically either ‘buy-out’ or ‘self-sufficiency’.
On 20 June 2017, MSCI announced that it will add 222 China A Large Cap shares to the MSCI Emerging Markets (“EM”) Index. When the inclusion is officially launched in June 2018, China A Large Cap shares are expected to account for about 0.73% of the MSCI EM Index.
In this paper we suggest a number of ways to address equity risk, including making allocations to emerging markets, taking a tactical underweight position to the US, and implementing currency hedging.
The third report on our research findings puts the relationships between trustees and their fund managers and investment consultants under the spotlight and gives insights into the interactions which are fundamental to the investment processes of pension schemes.
This paper examines the importance of costs and fees in trustee investment decision-making, and aims to understand the issues faced by trustees concerning the explicit and implicit costs and fees associated with fund management.
The first report on our research findings examines a range of different aspects of trustee governance including financial literacy, and attitudes to risk and social-demographics - all of which can influence trustees' investment decision-making.
Investors looking to improve the quality of returns in their portfolio often look to make an allocation that has a low correlation to their other holdings as part of their long-term strategy.
One such answer is to invest in a managed futures strategy.
There are a number of widely available alternative "factor" based indices using different stock weighting techniques (often known as "Smart Beta" strategies) which can be attractive in a number of different scenarios for investors. Learn more.
According to author and political activist, Helen Keller, "A bend in the road is not the end of the road?unless you fail to make the turn". We believe that pension scheme trustees and sponsors should prepare for the hazards on the investment road ahead. One way of doing this is to ask 'What if??' type questions. We call this 'scenario analysis.'"
While most pension schemes invest in property through UK core commercial property funds there are a number of other investment opportunities within the property asset class which pension schemes may want to consider. These strategies could help enhance return, improve income or even complement existing LDI portfolios.
Currency movements can have a significant impact on portfolio volatility and can dominate returns at times. Trustees should consider members' exposure and likely tolerance for currency risk.
In this paper we explore considerations for currency risk in DC schemes.
China's large onshore bond market is becoming increasingly open and transparent and its entry into bond indices will have a big impact on index composition and, consequently, bond investing. This timely piece examines recent Chinese financial market developments, characteristics of the Chinese bond market, and opportunities and risks associated with the opening of the Chinese bond market.
Reducing currency risk has historically helped to reduce overall pension scheme portfolio risk and, looking forward, some currency hedging makes sense from a risk reduction perspective. The significance of this risk will depend on specific circumstances. In this paper, Aon Hewitt experts provide general guidance for UK pension schemes.
With yields at or near historical lows and lower expected returns for most asset classes, the challenge for many pension scheme portfolios is balancing the need for return and income. This paper identifies a few opportunities that trustees may want to consider which can potentially improve income and/or the return profile of their portfolios.
Recent political and economic changes have led to volatile investment markets and the outlook for markets remains uncertain. Therefore it is essential for trustees to ensure they remain on track to meet their scheme's objectives in both the near and longer term. This paper explores different trigger strategies for staying on track.
In this paper, we explore to opportunities for long term investors arising from regulatory-driven bank deleveraging - primarily, private lending.
Aon Hewitt experts look at how institutional investors can fill the gap left by the banks in the market, and benefit from more attractive terms than those available in the broadly syndicated loan market or high yield bond market.
Many defined benefit UK pension schemes invest the vast majority of their assets in highly liquid investments. But, many schemes hold more liquidity than is needed. Aon Hewitt's paper looks at overcoming concerns around illiquidity.
Accessing the Chinese market directly has always been a big challenge for foreign investors. This paper, written by Aon Hewitt's James Jackson, looks at the expanding opportunity in China for emerging market investors. This has the potential to be very significant and eventually game-changing in terms of Emerging Market Equity Index composition.
Diversified Growth Funds (DGFs) have proved popular with investors because they offer a simple, low governance way of adding diversification to growth portfolios. However, simple is not always best and other solutions may be more suitable. Steven Peak of Aon Hewitt's Investment Practice explores the appropriateness of DGFs.
As markets become increasingly focused on the timing of interest rate rises, the stimulus that has driven equity markets higher with limited volatility over recent years is no longer likely to offer the same degree of support to long only investment strategies on a forward looking basis. Combining this uncertainty with concerns over global growth and a slowdown in China has resulted in the elevated market volatility seen since the summer. This introductory paper highlights the role that hedge funds can play in portfolios through the diversification and downside protection that their absolute return philosophy has the potential to deliver.
An introduction to Emerging Market Debt (EMD), including risks, performance and considerations.
Pension scheme liabilities are highly sensitive to movements in long term interest rates. In fact, this is one of the biggest financial risks schemes face.
Our short note explores factors for trustees to consider when dealing with interest rate risk.
In our short note, Equity Portfolios - Follow your Beliefs, we explore the different strategies available to trustees to get the most from their equity portfolios.
Investment decision making in defined benefit trustee meetings.
Aon Hewitt has been working with behavioural insight agency Behave London to research the behavioural biases involved in trustee decision-making. We have created The Aon Trustee Checklist to help with investment decision-making processes.
To read more about the challenges facing insurers, you can download a free report from ClearPath Analysis, including a roundtable debate and an examination of the current investment landscape.
Sion Cole explores why being active in today's environment is key to improving investment returns above liabilities and achieving end goals. First published in Pensions Expert.
The primary aim of fiduciary management is to help you achieve your longterm goals but in a risk-controlled, efficient and cost-effective manner.
How trustees select a fiduciary prodiver is one of the most talked about areas of the pensions industry at present.
Sion Cole examines the reasons why fiduciary management consistently gets excellent rates of approval in this article, first published in Pensions Expert.
Aon Hewitt's eighth UK survey on the fiduciary management of DB pension schemes is now available.
In this paper, we discuss the investment challenges that are impacting the DC investment market. How can trustees address these challenges and what does a solution look like?
Sion Cole discusses the evolution of fiduciary management solutions in the UK and how this has helped drive greater transparency. First published in Pensions Age.
Sion Cole looks at a solution that has extremely high levels of satisfaction across the board in this article, first published in PMI News.
Sion Cole looks at the drivers behind increased delegation in pensions investment in this article, first published in Pensions Expert.
Aon Hewitt's Sion Cole looks at the two key factors driving the continued strong demand for fiduciary management: investment expertise and nimbleness.
The 2016 survey provides an authoritative and detailed overview of the current fiduciary landscape.
Aon Hewitt's fiduciary management survey is the largest and longest-running survey in the UK pensions industry on this area of the market. This year's survey - the seventh - compiles views from over 250 respondents, 97% of whom are pension scheme representatives.
Taking a fresh look at the UK DB pension scheme investment model.
How £1bn+ DB schemes can benefit from operational infrastructures.
The fiduciary management space has become one of the most competitive areas within the UK pensions industry. That is why we are thrilled to have received the 2017 Fiduciary Management Firm of the year at the Pension Age Awards. This article, written by Pensions Age, summarises why the judges chose Aon Hewitt. The flexibility and transparency of our offering allowed us to stand out as the leading fiduciary provider.
This article, first published in Pensions Age outlines how fiduciary management solutions have evolved over the past few years and how schemes of all sizes can now benefit from this approach.
Can the learnings from the largest schemes in the UK benefit schemes of all sizes? In this paper, we delve into the theme of good governance and its impact on the success of pension schemes. It examines what success looks like and sets out how this might be achieved by schemes of all sizes.
Fiduciary management is one of the fastest growing areas within the UK defined benefit pensions industry. Since coming to the UK over a decade ago, the solution has evolved significantly and is set to continue in the future. In this guide, we look at how fiduciary management has evolved in terms of choice, transparency & outcomes.