Where are the customer’s yachts?

Between 2001 and 2010 the average OECD pension plan returned 0.1 per cent per annum. Savers who started putting money aside for their pension ten years ago are discovering that the value of their savings has only managed to increase marginally above the rate of inflation. Inflation has been low over the last decade, which means the performance of their investment has been shocking. The main reason behind this poor performance is that capital values have fallen dramatically because capital preservation has been largely ignored by the investment community. Roughly 25 per cent of all investment funds are passive funds benchmarked against an index. A large chunk of the remaining assets are active funds benchmarked against the same set of indices. Hence the main issue that fund managers care about is whether they have beaten their benchmark index or not, rather than whether they have increased the value of a savers’ pension pot. To the saver who is paying someone to increase the value of their assets, the idea that someone gets paid for not generating positive returns can be difficult to comprehend. Moreover, those fund managers that try and beat the market using asset allocation strategies tend to use the current macroeconomic framework for investment signals, in particular real GDP forecasts.