Debunking myths: Delegated portfolio management balances value and control
Image: Canva
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
Delegated portfolio management, often seen as a trade-off between cost and control, may provide defined benefit (DB) schemes with a more balanced solution than its reputation suggests. Findings from a mallowstreet and Aon survey of 54 UK DB schemes managing over £400bn in assets reveal that fiduciary management and outsourced CIO (OCIO) services can address key challenges - despite what schemes currently think.
The cost conundrum: offering value beyond price
While competitive pricing remains important, relying solely on cost reductions risks creating a “race to the bottom,” says mallowstreet’s Head of Insights Ally Georgieva. Almost 40% of DB schemes would consider fiduciary management or OCIO services for cost reduction alone. However, combining cost savings with strategic value-add could drive broader adoption.
The cost conundrum: offering value beyond price
While competitive pricing remains important, relying solely on cost reductions risks creating a “race to the bottom,” says mallowstreet’s Head of Insights Ally Georgieva. Almost 40% of DB schemes would consider fiduciary management or OCIO services for cost reduction alone. However, combining cost savings with strategic value-add could drive broader adoption.
"Delegated service providers who can offer flexibility and access to superior investment opportunities will likely attract greater interest. This is especially true for medium and small schemes, which particularly value access to better investment opportunities (cited by over 40%) and better portfolio diversifiers (cited by over 30%),” adds Ally Georgieva.
Different levels of delegation for different needs
Delegation preferences vary widely, with opinions divided on the ideal approach. Just 25% of DB schemes use fiduciary management or OCIO services at present. When asked about the model they would consider, 18% of DB schemes say they would prefer a partial delegation model focused on sub-portfolios or implementation, while another 18% favor full fiduciary management, encompassing everything from strategic asset allocation to risk monitoring – already signaling that there is greater appetite than the current levels of adoption.
However, the potential for greater flexibility and customisation appeals broadly. A third of all schemes, regardless of size, would consider delegation if it provided a more holistic and adaptable approach to portfolio management.
Striking the right balance for each client is key
These findings suggest that delegated portfolio management is not inherently at odds with retaining control. Instead, successful providers will focus on demonstrating how their offerings can align with scheme objectives while improving resilience and efficiency.
Striking the right balance for each client is key
These findings suggest that delegated portfolio management is not inherently at odds with retaining control. Instead, successful providers will focus on demonstrating how their offerings can align with scheme objectives while improving resilience and efficiency.
Andrew Shepherd, Head of DB Delegated Clients at Aon agrees: “We continue to see a trend towards clients delegating some, or all, of the day-to-day implementation of their investment arrangements. This gives Boards and Investment Committees the time and space to focus on critical strategic decisions and areas likely to have the most significant impact on outcomes.
“Additionally, a delegated approach means that portfolio changes can be carried out much more quickly, positioning schemes to benefit from tactical market opportunities. It also allows investors to adopt a more sophisticated portfolio than might otherwise be the case, often with significant fee savings and better risk-adjusted returns, net of all costs.”
For more information visit aon.com/investment
