Fiduciary managers face scrutiny over ‘lack of conviction’
Although global equity markets rose around 75 per cent in the three years to the end of 2025, fiduciary managers captured only a small proportion of those gains (David Paul Morris/Bloomberg)
UK pension funds have been urged to scrutinise increasingly cautious fiduciary managers amid concerns that growing risk aversion is leading to missed opportunities to add value.
While the large majority of fiduciary managers achieved or outperformed their scheme-specific investment objectives in 2025, Barnett Waddingham, now known as Howden Employee Benefits, found growing risk aversion across the industry despite managers generally being rewarded for taking greater investment risk.
Its recent Fiduciary Management Investment Performance Review, produced under the Barnett Waddingham name, found that, although global equity markets rose around 75 per cent in the three years to the end of 2025, fiduciary managers captured only a small proportion of those gains.
The consultancy says consistently cautious investment approaches may have resulted in fiduciary managers missing opportunities to generate additional value for pension schemes during three years of favourable markets.
"There is a continuing trend of investment outcomes clustering across fiduciary managers, despite different portfolio approaches being taken. Fiduciary managers are seemingly investing with a cautious mindset, largely in line with the broader risk-averse approach seen across the pensions industry," the report notes.
"Investment markets have been supportive in recent years, but if conditions change, these missed opportunities may come into sharper focus," it adds.
Peter Daniels, director and head of outsourced investment services at Howden Employee Benefits, tells MandateWire Analysis that the increasingly similar outcomes could reflect concerns among fiduciary managers about the consequences of deviating too far from their peers.
"The findings suggest a reluctance among fiduciary managers to take genuinely differentiated investment positions, perhaps reflecting the reputational risk of underperforming peers. For pension schemes seeking to achieve higher target returns, a lack of conviction can be a concern," he says.
Higher-return mandates prove challenging
The report points out that fiduciary managers have "struggled to deliver" for schemes with higher return targets.
"While private market allocations have held some strategies back, buoyant public markets should have provided the ideal environment for outperformance.
"With most mandates targeting low-to-mid returns, we question whether fiduciary managers have the flexibility to adapt their asset allocations to meet the needs of higher-return-target mandates," the consultancy says.
“Fiduciary managers appear to be struggling to adapt their portfolios to meet more demanding performance targets”
The report shows particularly strong performance among fiduciary management mandates targeting returns of between 1.5 and 2.5 per cent above liabilities in 2025, while performance was more mixed among mandates targeting 2.5 to 3.5 per cent above liabilities. Higher-return mandates have meaningfully outperformed lower-return-target mandates in only one of the past four years, in 2024.
The consultancy attributes some of the relative weakness to underperforming private market strategies, which in some cases was compounded by lower allocations to public equity markets.
"Fiduciary managers appear to be struggling to adapt their portfolios to meet more demanding performance targets," the consultancy notes.
Daniels says the industry's shift towards lower-return mandates may be making it more difficult for fiduciary managers to cater for schemes requiring greater returns.
"With most mandates now targeting lower returns, those processes have naturally become more risk-averse, which may have constrained outcomes for schemes with more ambitious return objectives," he says.
"That isn't to say higher returns can't be achieved, but trustees need to select managers with sufficiently adaptable investment processes and the capabilities to allocate assets effectively," he adds.
Sustained underperformance prompts mandate reviews
As most UK defined benefit pension schemes now target lower returns through lower-risk strategies, the design and implementation of liability hedging has come to represent a greater proportion of overall investment risk.
With some fiduciary managers increasingly responsible for "multiple aspects of the hedging process", the consultancy calls for independent scrutiny of hedging arrangements "to a similar standard as seen outside of fiduciary management".
"Any weaknesses in hedging design and management could lead to a material funding strain over a triennial valuation period," it says.
Longer-term performance trends could also have implications for fiduciary management mandate activity, with the review finding that sustained relative underperformance appears to be contributing to appointment changes.
Daniels says most pension schemes are willing to tolerate one or two years of underperformance. However, sustained underperformance is beginning to create challenges for some managers.
But Daniels says performance is not the only driver of mandate changes.
"We are increasingly seeing schemes review providers for strategic reasons, such as whether they are equipped to support low-risk, run-on or endgame-focused mandates.
"We are also seeing some schemes move away from fiduciary management altogether, either towards an [outsourced chief investment officer] model or back to a pure advisory approach."