Pension fund trustees in the UK are putting members savings at risk by gambling on a stable economic recovery that is far from certain, claims Cardano

Phil Page, a Cardano client manager told the press at a recent briefing in London (19.04.2011) that traditional passive long-term investment was akin to "burying your head in the sand" and amounted to a massive gamble on a moderate economic recovery that is only 60% likely in his firm's view.

Page said: "Most investors focus on this most likely scenario but they ignore the significant tail risks of an era of high inflation in the UK or a double dip recession, each of which we estimate to have a 20% possibility of occurring."

Criticising funds that remain committed to long-term passive investment, Page added that "You can't rely on equities to get you out of your funding difficulties in the new area. You might put your head in the sand for 20 years and look up only to be hit by rocky sea."

Cardano offers solvency management, a form of fiduciary management focused on eliminating liability risk and promoted as giving more control to trustees than individual fiduciary management. Their head of client management, Richard Dowell, conceded that "the name of fiduciary management is an instant barrier for many trustees" who are put off by the "secretive" nature of much of the industry.

Some £50bn of pension fund assets in the UK are said to be under fiduciary management, which means investment strategy is delegated entirely to an outside group. While its advocates insist the state of fund financing make it essential, it lost popularity in the wake of the financial crisis when some funds found their fiduciary managers had exposed them more to crashing sectors than they
expected.

Dowell added that fiduciary managers "all need to be more open and public. We want to say to trustees that we are focusing on your results and not your governance".

dbillingham@wilmington.co.uk 

First published 19.04.11