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Passive funds could improve pension scheme returns

18 September 2014

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Large pension funds could get an additional £3.8m return per year if they invest through passive funds rather than active funds because they are cheaper and perform better, research has revealed.

Investment manager Charles Stanley Pan Asset (CSPA) said that over the past five years, passive funds in 14 liquid asset classes outperformed institutional active funds by 4.73% on average.

Furthermore, CSPA said that the UK's Local Government Pension Schemes (LGPS) could improve performance by £441m a year.

By switching £85bn of actively managed investments in listed asset classes to passive strategies, LGPS schemes could be worth £28bn over 20 years.

Bob Champion, CSPA head of institutional business, said: "Our latest research provides further support for the argument that passive funds tend to outperform their active counterparts, net of fees, particularly over longer time periods.

"We have found that this is true for larger institutional pension schemes just as it is for smaller schemes.

"By taking a passive approach to investing in all asset classes, pension funds simplify their investment process, cut costs and should find long-term performance improves. It also puts them in a better position to focus on the investment decision that matters most – asset allocation."

First published 18.09.2014

monique_simpson@wilmington.co.uk