The Great Debate UK

Pension funds should ditch alpha and cut fees

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James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

If anyone has reason to pray that the current equity rally holds, it is the world’s active fund managers who need investors to return to the folly of betting on outperforming the markets rather than the uninspiring but reliable business of cutting costs.

Pension funds, particularly those where the employer bears most of the risk of making good on promised payouts, are hurting after more than a decade of poor market returns.

In Britain, for example, pension funds which promise to pay a fixed percentage of workers’ final salaries are woefully underfunded. If you use a more conservative government bond yield to value the funds, the top 200 firms in Britain needed a whopping 120 billion pounds to be considered fully funded, according to consultants Aon Corporation.

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