Growing emphasis on pension fund governance, investment policy: Study

 Research by asset manager BlackRock has found that there has been an increasing focus on improving governance and investment policy among defined-benefit pension fund managers.
Research by asset manager BlackRock has found that there has been an increasing focus on improving governance and investment policy among defined-benefit pension fund managers. ST PHOTO: JAMIE KOH

SINGAPORE - Over the past few years, there has been an increasing focus on improving governance and investment policy among defined-benefit (DB) pension fund managers amid changes in the global retirement landscape, research by the world's largest asset manager, BlackRock Inc, has found.

In addition, concerns about managing risk and being appropriately rewarded for it remain top of mind for many, with nearly three quarters, or 74 per cent of the executives interviewed saying that they created or revised a risk appetite statement in the period, and 72 per cent saying they created or revised an investment belief statement.

Around 70 per cent of respondents also enhanced risk analytics, while 69 per cent sharpened scrutiny of investment fees.

Nonetheless, by far the largest barrier to changing governance and investment policy for both corporate and non-corporate pension plans is a lack of financial resources, as cited by 65 per cent of the participants.

The study also found that pension plans are big users of index-based strategies, with a majority of those surveyed claiming that 40 per cent or more of their equities are managed through index funds.

Concurrently, more than a quarter manage 40 per cent or more of their fixed income in index mandates, and nearly three fifths of participants expect to increase index-based equity or fixed income.

Said global head of BlackRock's institutional client business, Edwin Conway: "Pension leaders today are on the front lines of a historic and urgent transition in how societies provide for retirement. Managing this changing environment, seeking efficient and higher-yielding investment styles and tackling challenges stemming from new regulatory and governance regimes will be key for both corporate and public pension schemes.While in many areas their paths are diverging, they both play a crucial role in reshaping global retirement."

Among other findings, the report also noted that while corporate DB pension plans are winding down, public and non-corporate plans are seeking to strengthen themselves in the long run. A DB plan is a type of pension plan sponsored by an employer based on factors such as one's earnings history and tenure of service.

Titled "Common challenges, diverging paths", BlackRock's study was based on a survey of 300 senior executives at corporate and non-corporate pension plans, as well as interviews with prominent CIOs (chief information officers), conducted by the Economist Intelligence Unit in October 2017.

BlackRock provides investment and technology solutions as a fiduciary to its clients. As at Dec 31, 2017, the firm manages about US$6.3 trillion in assets on behalf of investors worldwide.