Trustees may pay for firing managers

Patrick Hosking12 April 2012

PENSION fund trustees who follow standard industry practice and sack badly performing investment managers are usually making a costly mistake, according to new research.

Trustees would do better to stick with their existing managers or even, perversely, dump managers with good track records and replace them with investment laggards.

The research - from investment performance consultants WM Company, part of Deutsche Bank - shows that most asset manager performance is cyclical. Good performances are usually followed by bad patches and vice versa.

WM found that trustees who dumped seemingly good managers in favour of bad ones would have outperformed the industry by a significant 1% a year. The cost in conventional final salary schemes is ultimately borne by shareholders, who have to top up pension schemes. In defined contribution schemes, the cost is borne by the scheme members.

WM director Alastair Mac-Dougall said: 'Changing an investment manager is one of the most important decisions which pension fund trustees are liable to make and most are unsuccessful.'

Despite the constant refrain that past performance is no guide to future returns, trustees continue to prefer recent star performers when awarding mandates. The findings may also have resonance as the ISA (individual sav ings account) selling season begins in earnest. Small investors are notoriously drawn to fund managers with the best recent track record.

Create a FREE account to continue reading

eros

Registration is a free and easy way to support our journalism.

Join our community where you can: comment on stories; sign up to newsletters; enter competitions and access content on our app.

Your email address

Must be at least 6 characters, include an upper and lower case character and a number

You must be at least 18 years old to create an account

* Required fields

Already have an account? SIGN IN

By clicking Create Account you confirm that your data has been entered correctly and you have read and agree to our Terms of use , Cookie policy and Privacy policy .

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in