Research: Pension Funds Could Use a Clue on Best Products

September 18, 2006 ( - New research shows asset managers and pension funds have differing views on what products best meet a pension fund's needs.

A new global research study from CREATE, a UK-based think tank, co-sponsored by Citigroup and T. Rowe Price, found that liability-driven investments, portable alpha and hedge funds were cited by over 60% of asset managers as the products best suited to meet the needs of pension funds over the next five years. However, these products were not even among the top five mentioned by pension funds, according to a press release on the study.

The research revealed that institutional investors do want absolute return and liability-matching products, as well as value-for-money fee structures. Additionally, the study found that institutional investors want these products made more understandable, more transparent, less risky, more liquid, less volatile, and/or more customized.

Other findings of the research, according to the report, “Tomorrow’s Products for Tomorrow’s Clients: Innovation imperatives in global asset management,” include:

  • An exception to the general findings, the top five products identified by pension funds in the US are roughly similar to those identified by asset managers around the world.
  • DB plan sponsors want to see a replicable track record before venturing into new products.
  • For defined contribution plans in Europe and North America, demand growth will be greatest in four categories: target date retirement funds; investment advice products, involving tactical asset allocation; lifestyle funds; and managed accounts.
  • Asset managers are planning actions that will enhance their research, investment process, and assembly capabilities as part of a strategic thrust towards product innovation.
  • Outsourcing of back office functions will continue, as activities in the front office become more complex in pursuit of alpha and packaged solutions.

The report is here .