Pension funds fail to match rise in markets

All Irish pension funds failed to match the average rise in the markets in which they invested, according to new research from benefits consultants, Hewitt & Becketts.

The new Hewitt & Becketts quarterly InVision pension funds survey is based on a benchmark index drawn from a notional basket of publicly-quoted indices. The survey is based on the year to the end of June.

The basket includes the most commonly-used regional indices combined in the same proportions as the average asset allocations used by Irish pension funds.

In this way, it is designed to act as a stable and consistent measurement tool for investors and trustees seeking to evaluate the performance of their particular fund manager.

The new InVision survey finds that the average Irish pension fund manager underperformed by 1.8 per cent in the year to June, while none beat the index. Under the more traditional method of measuring managers against their peers, however, 12 out of 20 beat the average.

This illustrates the "inherent inefficiencies" of existing pension fund rankings, according to Hewitt & Becketts director of investment consulting, Ms Deborah Reidy.

Hewitt & Becketts argues that the traditional measure of manager performance - comparing them against their peers - is unsatisfactory because it can be easily skewed by the performance of one fund.

The new benchmark index posted a return of 16.2 per cent in the year to June 30th, with the Canada Life/Setanta passively-managed Consensus fund coming closest to this with a return of 15.9 per cent.

The worst performer over the past year, according to Hewitt & Becketts, was AIB Investment Managers' actively managed fund, which posted a return of 12.3 per cent.

The same manager's multimanager fund was, however, the best performer over the first half of 2004, with a return of 7.2 per cent comparing to the index performance of 6.8 per cent.

Average performance improved over 10 years, with five out of 14 managers succeeding in matching or beating the index.

Montgomery Oppenheim was the best performer over this timeframe, with a 12.6 per cent return, well outpacing the 10.3 per cent recorded by Hewitt & Beckett.

The average Irish manager still underperformed the index over 10 years by 0.3 percentage points however.

This shortfall could be attributed to the fees charged by the managers, Ms Reidy suggested, with average active management fees ranging between 0.3 and 0.7 percentage points.

"We would feel that the objective is to beat the index after fees," said Ms Reidy.

"After all, if a manager cannot beat the gross index after fees, the investor should go the less-expensive route of passive management, which should at least match the index after fees".