Pension schemes make grab for multi-asset funds

Pension schemes make grab for multi-asset funds

Investec’s John Stopford said pension schemes are increasingly piling money into multi-asset strategies with an income slant in a bid to meet cash-flow requirements.

Mr Stopford, head of multi-asset income at Investec Asset Management, said historically institutional investors didn’t care about the asset mix, and were instead focused solely on the total return.

He said the single-asset strategies are not generating enough natural income, adding these pension funds are essentially in a cash-flow deficit and need to search more widely to find a way of funding their requirements.

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 “But I think there are some changes happening,” he told FTAdviser, saying an increasing number of defined benefit schemes are looking at multi-asset income strategies as a way of meeting the cash-flow needs of retired customers.

 “Another reason people are beginning to look at these types of strategy in defined contribution schemes is there is greater reliance on income, rather than capital, as a more reliable way of delivering a total return.” 

This comes as research provider Cerulli Associates said it was optimistic about the longer-term prospects of multi-asset funds, forecasting their increased exposure within defined contribution pension schemes in the UK. 

Trevor Greetham, fund manager at Royal London Asset Management, told FTAdviser he had seen an increase in the number of defined contributed schemes investing in his £10bn multi-asset Governed range.

Mr Stopford said: “Institutional investors have been buyers of multi-asset for a long time, particularly diversified growth strategies, but now they see multi-asset income as more useful because they are not getting income from anywhere else.”

He also said pension funds are looking for income-heavy returns as a way of giving a greater level of certainty. 

Mr Stopford, who also manages the £230m Investec Diversified Income fund, argued multi-asset funds will continue to have a place in defined contribution schemes if interest rates start to pick up.

“We are moving into a world where people are increasingly focused on outcome.

"The problem with traditional asset-focused strategies is you are much more dependent on the performance of a particular asset class, so the ability to manage or plan for outcomes is harder. 

“The advantage of multi-asset funds is the choice and ability to adapt, blend and diversify, which lends itself more readily to outcome-based thinking, so even if interest rates rise that need is not going to go away.”

Peter Lowman, chief investment officer at Investment Quorum, said: "Clearly, UK pension funds have had a difficult time in recent years with many suffering from cash-flow deficits, higher levels of market volatility, and continually falling income levels.

"In recent times many UK pension funds have been showing an increased interest in multi-asset strategies, given their need for a diversified portfolio through a strategic and tactical asset allocation.