Planning For The Long Term

Fiduciary Management Is Growing Rapidly In The European Retirement Industry

Asset growth continues in the U.K. as management requirements become more sophisticated

Cerulli Associates’ European Retirement Industry 2022: Planning for the Long Term is a pan-European research analyzes the key trends and challenges in the retirement space and how asset managers can succeed in the ever-evolving market. 

December 1, 2022, LONDON—Cerulli Associates’ latest report, European Retirement Industry 2022: Planning for the Long Term, finds that the U.K. fiduciary management industry experienced significant growth, with assets managed under the structure growing by an estimated 16%, to £247.9 billion (US$301.4 billion).

The U.K. pension funds’ adoption of fiduciary management outpaced total pension asset growth of 5%. Cerulli estimates the adoption rate will nearly double by 2026, rising from 9.7% in 2021 to 19.0%.

“A range of factors will likely contribute to the growth of fiduciary management assets,” says Ross Langbridge, research analyst. One of the biggest factors impacting growth is outsourcing, he explains. “Some large businesses are looking to outsource the work currently done by in-house asset management teams, which are dedicated to the pension scheme but are not core to the overall business.”

Another key factor is the impact of the liability-driven investment (LDI) crunch in September 2022, which has exposed the governance structures of pension funds that operate on a purely advisory basis. Such pension funds may now adopt fiduciary management as an act of insurance against having to go through the experience again.

The Rise Of Customization

According to the research, the level to which fiduciary managers can customize solutions for clients is increasing, but that does not necessarily mean that all pension funds want tailored solutions. Smaller schemes (those with £100 million or less) tend to lack the sophistication or the budget to look for customized solutions.

A key area of customization is responsible investment. At one time, pension schemes looked to customize their solutions to add environmental, social, and governance (ESG) factors, but fiduciary managers are beginning to offer responsible investment themes as standard. Clients can now choose the standard solution that incorporates thematic ESG or opt to customize further and include impact investing.

If trustees are aware of their own limits to the extent that they outsource all these decisions, they are unlikely to be interested in a high level of customization...

Cerulli believes fiduciary managers should be wary of offering high levels of customization that their customers do not want. Trustees generally turn to fiduciary managers because they want to delegate decision-making. If they then make use of a third-party evaluator, they are also delegating most of the assessment of the fiduciary manager. “If trustees are aware of their own limits to the extent that they outsource all these decisions, they are unlikely to be interested in a high level of customization,” adds Langbridge

The Dutch Market

The Netherlands is home to the second-largest fiduciary management sector in Europe, with assets under management of €1.7 trillion (US$1.8 trillion) in 2021. The Dutch market is mature and relatively stable in terms of growth. Manager turnover is the one area that presents opportunities in the local fiduciary sector, but the stability of the market means few local pension funds are looking to switch providers. Those that do plan to switch will do so mainly because of changes to their circumstances or because they are unhappy with the fees they are being charged. More than two-thirds (70%) of Dutch pension funds are either satisfied or very satisfied with their fiduciary manager.




Interviews And Surveys
The report’s analysis centers on proprietary research, including more than 30 qualitative interviews with a diverse range of players in all the seven markets examined in detail. Interviewees included pension trustees, investment consultants, search consultants, fiduciary managers, and institutional asset managers.
A total of 280 defined benefit (DB) pension schemes across the UK, the Netherlands, Switzerland, Germany, France, and Italy completed Cerulli’s European pension fund survey. Of those respondents, 39% were UK pension schemes, 21% were Dutch, 11% were Italian, 11% were German, 11% were Swiss, and 7% were French. The survey included a mixture of smaller and larger schemes: 18% of respondents were smaller schemes with assets under management (AUM) of less than €1 billion (US$1.2 billion), 58% were mid-sized schemes with AUM of between €1 billion and €5 billion, and the remaining 24% were large schemes with AUM of €6 billion or more.
In addition, 50 defined contribution (DC) schemes in the UK completed Cerulli’s DC survey. Of these, 70% were either master trusts or trust-based DC schemes.
About Cerulli Associates
For over 30 years, Cerulli has provided global asset and wealth management firms with unmatched, actionable insights.
Headquartered in Boston with fully staffed offices in London and Singapore, Cerulli Associates is a global research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments