Ideas and Research

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Latest Research Reports

	Managing risk around retirement In this paper we suggest that the DC post-retirement hedging and de-risking market is currently under-developed and opportunities exist for greater product development. In addition we think the current practice of formulaic switching from growth assets to protection assets as DC members approach retirement age is too simplistic and will prevent many members from participating in strategies that can enhance the purchasing power of their portfolios. We also outline a number of market-based and regulatory developments that could improve pre- and at-retirement investment and points to three specific examples for doing so: introducing flexibility around retirement date, deferring the date of annuity purchases and adopting a draw down strategy, expanding annuity-type products.
	Emerging wealth In this research report Watson Wyatt asserts that the long-term outlook for emerging economies will impact positively on emerging market investments, but it warns that choice of asset class and implementation route are not obvious. The firm also suggests that emerging market equities, debt and currencies are where exposure to the macroeconomic dynamics of emerging markets will be most readily obtained. In addition it discusses how emerging market economies will continue to grow strongly, due to a mix of rising productivity, economic and financial reforms, and favourable demographics. However, it states that institutional investors face significant complexity and potentially high fees when trying to build a portfolio that captures this long-term trend and should also recognise the governance implication of following such a strategy.
	Improving fees in infrastructure In this paper we outline our views on the often complex fee structures involved when investing in infrastructure. Most of the infrastructure funds we research are structured as private equity type vehicles with similar fee structures. The features of these fee scales include: fees based on commitments rather than invested capital, high management fees of 1-2 per cent, hurdle rates of around 8 per cent, carried interest of 20 per cent, full catch-up (sometimes phased in), additional fees and charges, such as transaction or financing fees and fund expenses. We have concerns about a number of these features and explore them in more detail in the paper.
	Investment Governance: enhancing the value chain The alignment of DC plans’ investment strategy to its governance capability is critical to maximising value for members, whereas a misalignment can both waste effort and destroy value.
	Private equity fees and terms Negotiating terms has previously been challenging due to limited capacity in high quality general partners (GPs) and the restricted ability of limited partners (LPs) to pool their bargaining power.