No pension fund in the world has yet insourced the entirety of its fund management or is planning to do so, shows analysis from JPMorgan.
Benjie Fraser, managing director and global pensions executive at JPMorgan, speaking at an Investment Management Consultants Association (IMCA) seminar tracked the steady growth in the world’s largest pension funds to increase the amount of assets managed in-house.
The catalyst for such actions is often around the cost or practicalities of managing a large asset class exposure, but no single style of insourcing suited all funds.
Fraser cited how Dutch funds might run their illiquid assets in-house, while it was the norm of public funds in the USA and Australia to insource liquid assets to reduce costs. By contrast Canadian funds focus on out performance, as the rationale for taking assets in-house – some of the largest Canadian funds, such as the Ontario Teachers’ Pension Plan have a majority of their assets managed in-house.
He estimated that only $14.9 trillion of the $32 trillion of funds under management held by pension funds was likely to be considered for internalisation. The rest he said would continue to be externally managed, an increasing part of it on a fiduciary management basis.
“A small group of very large pension funds are looking to things differently, driven by costs, and oversight issues,” he said, “But there is room for both in-house and external managers, it is not the ambition of any fund to manage all assets internally.”
Other than cost and performance, he described how issues of governance and oversight were also driving some of the largest funds in the world to increase the proportion of funds managed internally.
He cited how the complexity of managing 30 different hedge funds at Californian public workers’ fund Calpers had led to the liquidation of this part of its portfolio.
Similarly, other funds were finding that as they grew in size it was difficult to place large sums of money with their chosen fund managers, while for others there was the discovery that large sets of managers in an asset class had taken positions where they were effectively trading against each other.
While at Nordic funds, Fraser told how internalisation was giving an improved line of sight into the asset classes to improve the governance as well as the cost.
AustralianSuper has revealed its aim to manage around 35 per cent of assets internally by 2018 in its 2014 annual report. It already manages a proportion of its Australian equities in-house and it will now seek to manage small cap Australian equities, global equities, bank loans and credit instruments in-house.