Defined contribution – Cover story
side is that everybody is trying to do their best to keep a cheap investment strategy because otherwise they will be uncompeti- tive, not be able to win assets and then not be able to exist in the years to come.
If the private market wants to sell assets, they should be adjusting their pricing structure so that it works in a way DC scheme pricing works.
Daniela Silcock, PPI
“The majority of master trusts charge members between 0.3% and 0.5% of assets under management. So, they do not reach the charge cap, but the idea is that you would not be competi- tive if you charged it,” she adds.
“The government has become aware of the environment that they helped create and are trying to move away from that by getting schemes to look more at overall returns and diversifica- tion, rather than just focussing on costs,” she adds. With a market that is still in flux, the race to become one of the remaining master trust providers is fierce, Nazarova-Doyle says. “The market is highly competitive, like nothing I have ever seen. It is a bit of a wild west out there. “Everybody is trying to gather assets and it is a once in a lifetime business opportunity because once an employer chooses a master trust, the secondary movement will be much slower,” she adds. “Everyone competing on costs is affecting the way buyers are behaving in consultancies. It is now a thing to say to your cli- ent: ‘This is the cheapest, therefore it’s alright.’ There is no dif- ferentiation and people seem to only be buying on price, it is almost seen as a commodity,” she says.
One example of this consolidation is SEI, which bought the Atlas Master Trust last year to create a master trust managing £2.1bn in assets. “It is perhaps a bit unusual that a smaller master trust acquires a bigger one, but we have always been clear that we want to grow organically and through acquisi- tions,” Charlton says. “The master trust market will continue to consolidate and we want to be one of the survivors.” The focus on costs and the initially smaller scale of the funds has affected investment strategies, argues Nazarova-Doyle. “What that does to investment strategies on the master trust
“My expectation is that this is a phase” she adds. “Once that market has consolidated, we are going to go from a fee focus to a quality focus and that is when master trusts will start to feel more relaxed about fees because they will be competing on quality and results.
“It is not necessarily a question of scale, but also a question of competition in the market and cost focus,” she says. “Once that settles, then they will be able to do more exciting stuff, which also helps with unlocking cheaper fees because the bigger you are, the better the deals you get.”
Heavy on stocks
The workplace pension market’s liquidity rules, cost pressures and the average demographic of its members have favoured investments in developed market equities. portfolio institutional has surveyed the asset allocation of default funds in the 10 larg- est UK master trusts to provide a snapshot of their current investment strategy.
The default funds in question were for members who are 20 years away from retirement, reflecting a reasonably high focus on growth. Of the funds surveyed, eight out of 10 had more than half of their portfolio invested in developed market equi- ties. Nest, the biggest master trust provider managing more £than £20bn in assets, has 50.5% of its 2040 Retirement Fund
Largest master trusts by AUM
1 2 3 4 5 6 7 8 9
10 11 12 13 16 14 15 17
Name Nest
The People’s Pension LGIM
Lifesight (WTW) Aviva
Standard Life Mercer Aegon Fidelity
Now Pensions Atlas /SEI
Smart Pension Aon
Scottish Widows
National Pension Trust Creative Pension Trust
AUM
£20.9bn £17bn £17bn
The Pensions Trust (TPT Retirement Solutions) £13.9bn £13bn £6bn
£5.4bn £5.6bn £3.5bn £5bn
£3.2bn £2.1bn £1.8bn £1.7bn £1.6bn £1.1bn
£697.5m
Membership 10.1m 5.7m 1.4m
400.000 23.000
340.000 152,200 130.000 148.000 120.000 1.8m
100.000 800.000 40.000
100.000 930.000 217,500
Source: portfolio institutional Issue 111 | March 2022 | portfolio institutional | 23
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