But what are the options for trustees looking to delegate this implementation?
Fiduciary Management has become increasingly common and could well be the right choice if your scheme needs a material level of investment return that you cannot generate on your own.
But trustees often tell us fiduciary management can feel like of a loss of control over strategic direction, a conflict of interest, or just too expensive for their needs.
If any of these cases apply to you, an Implementation Manager could be a better alternative.
An Implementation Manager continuously reviews an investment strategy against a scheme’s objectives and tweaks it whenever necessary. This approach is useful across several common scenarios.
For a scheme running an LDI mandate, an Implementation Manager can shoulder the day-to-day operational responsibilities, always keeping within pre-defined parameters set by the trustees. For example, a framework that dynamically replenishes or releases collateral can eliminate the frantic, short-notice, run-around to approve fixes over email.
As we are all aware, market conditions can change quickly and to unexpected extremes. In these situations, an Implementation Manager, that has been authorised by the scheme, can dynamically rebalance in and out of growth assets to keep a portfolio in line with the scheme’s required return.
They can also review and update hedge ratios on an ongoing basis, rather than once a quarter, to ensure any unrewarded risk is removed.
Some Implementation Managers can also complete the bulk of the set-up for a new investment strategy – including allocations that are not managed by them.
Here is a summary of these processes:
Automating these refinements helps to avoid the need for large, abrupt changes in direction. Not only does this enable schemes to follow a smoother path to their funding goals, but it helps trustees regain the precious time needed to focus on decisions that make a real difference to their members.
Smart use of your asset manager and investment advisor can also result in far less operational risk, and a reduced governance burden.
To free up strategic bandwidth and reduce the risk of missing opportunities, consider how you could make better use of your asset managers and advisers to take some of the operational burden off your hands.