“I have to make money. Beating a benchmark: what does it mean?” – Kyungjik Lee, head of global equities and fixed income, National Pension Service of Korea. • “The index is not designed to make you money.” – Ewan Markson-Brown, investment manager, Asia-Pacific equities, Newton. So why do pension funds continue to use these indexes? In Australia, the most commonly used global index is the MSCI World ex-Australia, which has no emerging markets exposure. Super funds tend to augment this with MSCI Emerging Markets and/or Asia ex-Japan and/or BRICs indices, and so on. The MSCI ACWI, even, with just 13 per cent exposure to emerging markets, is not universally used.

If you ask an investment professional at a super fund what the members of that fund care about, he or she will likely say that main thing is whether or not the fund makes money or loses it.  It’s easy to blame asset consultants for investors’ deep benchmark-awareness. By their nature, consultants need something to measure the performance of their clients’ businesses against.  Perhaps funds managers can show some leadership here. Perhaps managers, in a post-crisis environment, can also take on a role as trusted advisor to a fund, and not just be the slavish follower of a pre-defined mandate. Perhaps managers can suggest that funds look for new ways to not only measure performance but also structure their entire investment portfolios.

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