UK pension fund management after Myners: the hunt for correlation begins
AbstractThe Myners Report will have a number of significant consequences for pension fund management and performance measurement in the UK. It changes the way in which assets are selected. The strategic asset allocation will have overriding importance in pension fund management. Asset classes will be selected on the basis of their match with liabilities in terms of correlation and volatility, rather than on the basis of expected return. Every pension scheme will have a scheme-specific funding standard that reflects the maturity structure of the liabilities of the scheme. It changes the role of the fund manager. A hierarchical relationship will develop between the investment advisor, actuary and fund manager. The investment advisory function assumes a primacy over the actuarial and fund management functions. It changes the way investment performance is measured. Liability-driven performance measurement and attribution will replace the existing performance measurement framework in the UK. The passively managed components of the pension fund will be judged on the costs of implementation. Only the performance of the surplus assets will be measured on a conventional basis. The Myners Report is summarised and an illustrative statement of investment principles and transparency statement are presented.
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Bibliographic InfoPaper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 24833.
Length: 59 pages
Date of creation: Apr 2003
Date of revision:
Pension fund management; Strategic asset allocation; Liabilities; Performance measurement; Myners Report; Scheme-specific funding standard; Statement of investment principles;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- G3 - Financial Economics - - Corporate Finance and Governance
- J1 - Labor and Demographic Economics - - Demographic Economics
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- Haberman, Steven & Sung, Joo-Ho, 1994. "Dynamic approaches to pension funding," Insurance: Mathematics and Economics, Elsevier, vol. 15(2-3), pages 151-162, December.
- Blake, David, 1998. "Pension schemes as options on pension fund assets: implications for pension fund management," Insurance: Mathematics and Economics, Elsevier, vol. 23(3), pages 263-286, December.
- Blake, David, 2003. "Pension Schemes and Pension Funds in the United Kingdom," OUP Catalogue, Oxford University Press, edition 2, number 9780199243532.
- David Blake & Bruce N. Lehmann & Allan Timmermann, 2002. "Performance clustering and incentives in the UK pension fund industry," LSE Research Online Documents on Economics 24945, London School of Economics and Political Science, LSE Library.
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