It would be difficult to write something at the moment without talking about the recently published FCA Asset Management Market Study. I have tried to pull out three key messages which I believe are of particular significance for LDI managers.
Focus on client outcomes
The core message from the FCA was that everyone should be focusing on client outcomes and how they can deliver suitable strategies and products cost effectively. For me what this suggests is that LDI managers should be thinking about what clients need before thinking about what products are easy to build. Given that targeted outcomes of pension schemes are fairly size agnostic, for me, this implication from the FCA is that small schemes should have access to the same tools as larger schemes.
Give smaller schemes a bigger voice
The FCA also flags that smaller schemes should be given a bigger voice. For me, that goes beyond just being able to negotiate better fee levels. It is linked to my previous point– small schemes should have a big enough voice that LDI managers will offer the same tools to all schemes, irrespective of size. The FCA discusses consolidation as a way of doing this but this should not be confused with creating a pooled fund. I have blogged before on the inherent problems of accessing derivatives via a pooled vehicle. In my view, if LDI managers can find a way to offer real value for money without using a pooled fund this would achieve better results for smaller schemes.
Think about complexity
Within the final FCA report, there was very little mention of LDI. Within the LDI section, the one thing that stood out for me was the mention of respondents that had commented on the complexity of LDI. I agree that if LDI is not explained in the right way then the perceived complexity can be a significant challenge, especially for smaller schemes. However, I do not believe that LDI is any more complex than any other investment tool (I will be publishing a further blog next week explaining this in more detail) and, if communicated correctly, it should be possible for trustees of any scheme, large or small, to fully grasp and comprehend exactly how LDI can work for their scheme.