That’s the average depth of field when pension schemes begin selecting a new asset manager, according to a recent Professional Pensions study of 100 schemes.
But where does this longlist of five names come from? And how can you make sure that your firm is included among them?
Assembling The Longlist
According to our research, in 86% of cases, schemes get help with manager selection from their investment consultant. Only 13% of pension schemes handle the selection process internally.
The reliance on investment consultants makes sense, given the technical nature of this part of the process. Forming a longlist is about identifying synergy between the scheme’s investment strategy, on the one hand, and the skills and specialisms of the managers in question on the other. It’s not so much about the personal chemistry between the manager and the trustees. That’s something which becomes more significant later on in the selection process.
One interviewee said there wasn’t much decision making at all at the longlisting stage – at least not in the active sense of the word.
“Factors such as: the size of the scheme; whether the scheme is DB or DC; which assets the scheme wants to allocate to; and whether active or passive management preferred, will all determine which firms are the most suitable to include in your longlist . The answers to these questions make the decision for you.”
So don’t expect to be headhunted for inclusion in a longlist. It’s more about appealing to the widest audience possible.
The Long Game
Pension schemes tell us that finding the right asset manager doesn’t hold as much intrinsic value as, for example, getting their asset allocation or investment strategy right. That being said, it’s something which schemes still take very seriously.
The manager selection process takes up a lot of time after all – typically up to 6 months according to our findings – and the majority (51%) of schemes that we spoke to feel that the process couldn’t be reduced substantially further than this.
“The process should not be quick. It requires careful consideration and due diligence,” states one respondent, while another added that “haste makes waste!”
In short, manager selection is something which schemes want to get right.
And it’s a contest which can’t be won at the start: only at the end. When we asked schemes whether they’d be happy to forego a full selection process based on an early recommendation for the mandate from their investment consultant, 89% said no.
Prospective managers need to be prepared to play the long game.
To access the full results of our study, please click here.