European DC pension market to grow – Cerulli
17 August 2011 London
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European asset managers should be taking a long look at the corporate direct contribution (DC) market, wrote Cerulli analysts, predicting 11.5 per cent annual growth to 2014.
A great deal of recent attention has focused on default funds, where the vast majority (80 per cent) of savers will end up. Key developments in this area include life-styling, dynamic asset allocation, absolute return strategies, target-date funds, and a certain move away from passive investment.
The development of dynamic asset allocation strategies goes hand-in-hand with another trend: the inclusion of a wider range of assets in corporate DC funds. It is significant that DC funds are beginning to incorporate asset classes previously only seen in defined benefit (DB) plans, such as real estate and hedge funds. This, clearly, facilitates a move toward absolute return as opposed to relative return strategies, notes Cerulli.
“Although the move toward more complex and better planned DC schemes has largely been confined to more mature markets, such as the Netherlands and the UK, the future must surely lie in this direction,” says Barbara Wall, editor of Cerulli Edge: European Monthly Product Trends. “In the meantime, asset managers must ready themselves in both mature and less mature markets to make the most of business opportunities as they arise,” continues Wall.
In the UK, regulations starting in late 2012 will require automatic enrolment of eligible staff and minimum contributions into pension schemes. Some 750,000 employers currently offer no workplace pension provision, according to the National Employment Savings Trust (NEST), one of the pension schemes employers can use to meet the upcoming obligations.
Other markets highlighted by Cerulli analysts include Germany and Italy.
Although Germany’s DC market is still developing, its steady growth in assets and sophistication is offering new business opportunities for companies able to combine a track record with a wide range of risk-mitigation options. Managing the impact of interest rate and inflation changes on their liabilities is very much at the forefront of German investor concerns, presenting an opportunity for fund managers with expertise in the field, say Cerulli analysts.
In the Italian market, despite discontent over its development and the fact that it is still dwarfed by the rival insurance industry, the pensions industry is also showing signs of resilience and change. At the end of the first quarter of this year, the fund management industry as a whole attracted €1.4 billion inflows with pension flows accounting for €538 million, according to the Italian funds trade body Assogestioni, wrote Cerulli.
An Italian fund manager working for a foreign company said that large fund managers with a strong brand would do well with investors disenchanted with their local providers, it adds.
In European macroeconomic news, equities have been reeling from the summer's volatility, while governments and the ECB implement various measures to stop markets bleeding and stabilise bond yield spreads.
The ECB spent €22 billion on government bonds in the second week of August, adding Spain and Italy to the list of countries requiring intervention after Greece and Portugal, bringing the total amount of eurozone bonds on its books to €96 billion.
“Some people in Europe criticise the ECB for purchasing bonds in the secondary market but there shouldn’t be any problem if issued money is properly sterilised,” wrote Jorge Vrljicak, macroeconomic analyst at Equity Research desk.
“Apart from that, the amount of bonds in ECB's books is about the size of Facebook’s market capitalisation...critics cannot argue that Europe is not worth at least what people pay for the social network,” he adds.
A great deal of recent attention has focused on default funds, where the vast majority (80 per cent) of savers will end up. Key developments in this area include life-styling, dynamic asset allocation, absolute return strategies, target-date funds, and a certain move away from passive investment.
The development of dynamic asset allocation strategies goes hand-in-hand with another trend: the inclusion of a wider range of assets in corporate DC funds. It is significant that DC funds are beginning to incorporate asset classes previously only seen in defined benefit (DB) plans, such as real estate and hedge funds. This, clearly, facilitates a move toward absolute return as opposed to relative return strategies, notes Cerulli.
“Although the move toward more complex and better planned DC schemes has largely been confined to more mature markets, such as the Netherlands and the UK, the future must surely lie in this direction,” says Barbara Wall, editor of Cerulli Edge: European Monthly Product Trends. “In the meantime, asset managers must ready themselves in both mature and less mature markets to make the most of business opportunities as they arise,” continues Wall.
In the UK, regulations starting in late 2012 will require automatic enrolment of eligible staff and minimum contributions into pension schemes. Some 750,000 employers currently offer no workplace pension provision, according to the National Employment Savings Trust (NEST), one of the pension schemes employers can use to meet the upcoming obligations.
Other markets highlighted by Cerulli analysts include Germany and Italy.
Although Germany’s DC market is still developing, its steady growth in assets and sophistication is offering new business opportunities for companies able to combine a track record with a wide range of risk-mitigation options. Managing the impact of interest rate and inflation changes on their liabilities is very much at the forefront of German investor concerns, presenting an opportunity for fund managers with expertise in the field, say Cerulli analysts.
In the Italian market, despite discontent over its development and the fact that it is still dwarfed by the rival insurance industry, the pensions industry is also showing signs of resilience and change. At the end of the first quarter of this year, the fund management industry as a whole attracted €1.4 billion inflows with pension flows accounting for €538 million, according to the Italian funds trade body Assogestioni, wrote Cerulli.
An Italian fund manager working for a foreign company said that large fund managers with a strong brand would do well with investors disenchanted with their local providers, it adds.
In European macroeconomic news, equities have been reeling from the summer's volatility, while governments and the ECB implement various measures to stop markets bleeding and stabilise bond yield spreads.
The ECB spent €22 billion on government bonds in the second week of August, adding Spain and Italy to the list of countries requiring intervention after Greece and Portugal, bringing the total amount of eurozone bonds on its books to €96 billion.
“Some people in Europe criticise the ECB for purchasing bonds in the secondary market but there shouldn’t be any problem if issued money is properly sterilised,” wrote Jorge Vrljicak, macroeconomic analyst at Equity Research desk.
“Apart from that, the amount of bonds in ECB's books is about the size of Facebook’s market capitalisation...critics cannot argue that Europe is not worth at least what people pay for the social network,” he adds.
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