The report says that change is happening on a grand scale. “We see the demise of the old long-lasting models like relative return, current DC [offerings], governance…but we also see the union of the distinct investment building blocks, alpha and beta, with separate going rates for each,” the report says.

“This is a world of opportunity for those fit enough to change, where fitness is increasingly defined by the ability to be adaptable and apply new thinking and new theory.”

The six longer-term macro trends are:

  • Better multi-period investment design – a new success measure for funds will look more at the key steps in the journey and measurement will fully adjust for risk.
  • Better DC – an improved member value proposition needing platform strength, better investment design with glide-paths and technology-supported engagement.
  • New food chain – the big moves are away from fiduciaries and committees and towards CIOs and investment professionals, who manage costs more aggressively.
  • New investment content – more innovations, such as portable alpha and beta, beta creep, structured products and solutions, all claim an intellectual edge but all are subject to practice.
  • Continued crisis contagion – continued prolonged significant distress events are likely given the systemic flaws, excess complexity and compensation in the system.
  • New players and new organisational order – under more performance pressure, organisations will need to develop new competencies.

The report highlighted that while pension funds might be the largest institutional funds of today, they are being challenged for influence by non-profit funds such as endowments and foundations – which Watson Wyatt estimates comprise US$4 trillion today – and sovereign funds, which accounted for close to US$5 trillion at the end of 2007.

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