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Money managers under the microscope

Vanguard plans UK target retirement date funds

June 30, 2010

US passive giant Vanguard is planning to bring its target retirement date products to the UK market to target the growing defined contribution (DC) pensions business.

Taking to Reuters at the Fund Forum, Tom Rampulla, managing director of Vanguard UK, said that the firm was currently trying to structure these long term savings products for the UK market, and looking to add key funds to support the offerings.

“We’re trying to construct a glide path and looking to add an inflation-hedge bond fund and a long-dated bond fund,” he said. A glide path describes the way an investor’s asset allocation changes over time as they near their target retirement date. For example, a younger investor might have more equity exposure than bonds, but move more of their savings into bonds as their retirement date nears.

Rampulla said that the DC market wasn’t huge yet in the UK but 80 percent of these DC assets are in the “default” option – generally a balanced fund which is concentrated in equities.

Although Vanguard didn’t initially set out to target the instistutional market in the UK, some 50 percent of its £800 million under management is in this segment, and Vanguard recently appointed David Plumstead to lead the institutional sales business.

It has already received commitments from pension funds, insurers and a Belgian multi-national with a UK retirement plan, with flows mostly into the equity index products.

Beyond the bond fund launches and the roll out of the target retirement date products, Rampulla said he was also looking to add Exchange Traded Funds (ETFs) to the UK range to help support its targeting of the fee-based adviser market.

Fee-based advisers are more likely to use low-cost, ETFs in portfolio planning because they are not penalised for doing so, unlike commission-based advisers.

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