The Spence Johnson Blog

By Will Mayne, 18 September 2014Market Intelligence | DB Pensions

Solutions for the DB end game

Continued stock market growth may help to disguise this, but in the near future we predict in our 2014 UK DB Market Intelligence report that the structural decline of DB will reveal itself in falling asset numbers. Taking into account all the many factors which will impact this number, and making our own assumptions on each, we estimate that in 2023 the private sector UK DB market will be £1,052bn, a fall of 6% from £1,119bn today. So when we say decline, we do not mean a severe fall.  And we also forecast that these DB schemes in 2023 will still contain over 50% more assets than will Workplace DC at that time, so it would be wrong to say that the aged aunt of DB is being quickly supplanted by its younger cousin.

However DB is changing, and changing rapidly. From as early as 2009 Spence Johnson have been a keen observer of the birth and growth of fiduciary management in the UK. Now, at nearly £60bn, the market is starting to move from a minority solution to a dominant feature of the UK DB landscape. We expect this to continue and predict that FM solutions will control over £200bn by 2023.

Our faith in the future of FM is buoyed by three factors. The first is the closing of DB schemes and a growing interest amongst sponsors to delegate day to day management of the DB scheme to a fiduciary manager focused on end game planning. The second is the support of UK consultants; either through acting as providers of solutions directly, or building selection and monitoring businesses to complement the growing role of FM. The final factor is client satisfaction. We have recently conducted a client satisfaction survey of 32 fiduciary management clients. Our findings support the findings of other studies which indicate almost universal satisfaction of DB schemes with FM.


By Will Mayne, 20 May 2014Market Intelligence | Investment Products

Our DGF market forecast doubles – Growing to £201 billion by 2018

For those who bought our first DGF report last year this number may be a surprise in that it is significantly larger than our previous forecast of £99bn – in fact it has more than doubled. This blog will explain the three factors that have combined to change our forecasts quite so dramatically and why we think this greatly increased opportunity is justified.

  1. The first factor is more accurate size of the DGF market today. In this year’s report we collected data directly from DGF managers in the form of our DGF survey. This survey gave us previously unavailable segregated mandate data and more granular investor type information. Our conversations with trustees, consultants and DGF managers also led us to expand our DGF universe from 21 funds to 34. These changes added about £10 billion to our retrospective market size for 2012 which fed through into the increased forecast.

  2. A second factor was the incredible pace of adoption by DB schemes witnessed in 2013 - £10 billion of DGF asset growth came from this source in 2013, off a base we had previously estimated at only £30 billion. We had expected these assets to transition over years rather than months and were too conservative in our initial predictions.

  3. A third important factor was the emergence of new types of investors in DGFs in 2013. In 2012 the DGF story was almost exclusively a UK pension one. However in 2013 there were significant asset flows from UK retail investors as well as major investments from non-UK institutional investors. This broader opportunity set was another important factor driving our revised predications. 

By Will Mayne, 3 December 2013Market Intelligence | Insurance Asset Management

Myth buster – There’s no money in managing insurance assets

This blog has already featured our analysis on European Insurance Asset management and the €420 billion being managed by external managers. Despite the scale of the opportunity a number of our asset manager clients have expressed mixed feelings about managing insurance money and, in the extreme, consider it not worth the effort.

This blog aims to shed some light on the murky world of insurance and explain why we think it’s changing and creating a very compelling business case for asset managers.

1.  “it’s low margin, high volume business…not what we’re after at all” – Managing ‘core’  insurance assets is indeed low margin, with charges around 8-12 basis points and an elevated cost base. Managing the ‘satellite’ assets is however a very different story. Insurers are diversifying into new asset classes like infrastructure, high yield debt, commercial loans and emerging market debt. This has created attractive revenue opportunities with significant margins for the taking.

2. “the client touch is very onerous, we don’t have actuaries and don’t manage insurance risk” – Asset managers do indeed need to speak ‘insurance’. But this needn’t be the fluency required by the managers looking to take on fully delegated arrangements. Asset managers need to consider insurance specific reporting and data requirements but the investment is well worth the reward. Our research shows that once insurers are satisfied that their external managers can meet the requirements then they’re more likely to use them again and again, saving on the due diligence leg work.

3. “some of the most disappointing meetings I’ve had in recent years are with insurers” – A frustration felt by many asset managers in their dealings with insurers is that they’d listen very politely and then not be prepared to follow up, or in fact, implement the ideas internally. Our research indicated a similar story. The low yield environment forced insurers to look for new ideas and so they reached out to asset managers. Many then didn’t act, hoping to ‘wait it out’ and return to their old ways. The persistence of a low yield environment and Solvency II coming steadily into view has forced many of these insurers to move beyond conversations and are now acting. Others, who tried their hand at new strategies internally, encountered costly issues and are now ready to look for external partners. We would urge our clients that the conversations taking place now are very different.

See our European Insurance Asset Management market intelligence report for more details 

By Will Mayne, 4 June 2013Market Intelligence | DC Pensions

Should all asset managers have a DGF?

The Diversified Growth Fund (DGF) market is already substantial and is set to grow considering over the next few years. We estimate that the institutional or quasi institutional market in the UK is £66 billion. This, we believe, will grow to £99 billion by 2018, with over £30 billion expected to flow into DGFs over the next 5 years. There is therefore a significant opportunity for DGF managers both now and in the future.

Success to date has however been elusive for all but the largest DGF providers. Despite being marketed as an absolute return fund and not a DGF, Standard Life Investment’s GARS fund nevertheless is considered a DGF by many pension trustees and is by far the largest fund residing under the DGF brand at £25 billion in assets. It is joined by popular funds from Newton, BlackRock, Baring Asset Management and Schroder’s. These top five providers currently control nearly 90% of the institutional, or quasi-institutional, DGF market by assets. Outside of the top funds there is a long tail of DGFs which have been unable to accrue significant assets and must be considering their future in the market.

Not all hope is lost however; we believe that new opportunities will begin to emerge for DGF managers. The asset inflows we predict cannot be managed by today’s winners alone and funds will begin to close from capacity constraints. Baillie Gifford’s DGF is a notable example of a successful fund which has closed this year due to a surge in inflows. The future also looks increasingly likely to be less about which single DGF to invest in but more likely which combination of DGFs are best suited to your needs. This ‘blending’ of DGFs will create opportunities for funds outside of the current winners.

Our latest market intelligence report on the UK DGF Market offers in depth analysis on the UK DGF market and details the critical success factors. 

By Will Mayne, 2 May 2013Market Intelligence | DC Pensions

New ideas for engaging savers with DC pensions

The Pension’s Policy Institute (PPI) is currently working on research1 to determine the factors that govern whether an individual will obtain an adequate income in retirement. The details of the research will be fascinating but even now we can predict that the level of contributions made during working years will be critical to the eventual retirement income obtained.

Early engagement with the unfortunate reality of needing to save for life after work is therefore vital. The ABI highlighted in research2 in 2012 that “awareness and understanding of how defined contribution pensions work, and engagement with decisions that will need to be made at retirement, were very low”.  The pensions industry is therefore eagerly listening for new ideas as to how to engage DC savers with their pension.

Work we recently participated in with the Defined Contribution Investment Forum has raised some interesting insights around this very question. The DCIF research3 explored one possible approach to driving engagement; that some funds could be built around a ‘social objective’.  The research offered savers the opportunity to select pension funds that directed some assets to support social causes; sustainability, local communities and local businesses. The DCIF found that 77% of respondents favoured a social investment fund over a conventional fund. 44% of respondents still preferred their chosen social investment fund even when they were told they would receive an 8% smaller pot at retirement.

Although consumer research has well documented weaknesses as a predictive tool, it does indicate that some individuals could prefer a pension which directs funds to causes they value.  The possible implications of this are intriguing. Would individuals be more likely to pay their pension more attention if it better reflected their values? Would directing money towards causes they favour leave consumers feeling more positive and empowered in regards to their pension? Could this impact contributions rates? With our estimates indicating there will be nearly 10 million more DC savers by 20224, these are questions worth considering.

1 What level of pension contribution is needed to obtain an adequate retirement income, Pensions Policy Institute, 2013

2 Shopping Around for Retirement Income: Unrequested Annuity Illustrations, Association of British Insurers, 2012

3 Identifying new ways to engage with savers in Defined Contribution Pension, Defined Contribution investment Forum, 2013

4 Defined Contribution Market Intelligence 2013, Spence Johnson, 2013