In God We Trust All Others Bring Data 100702

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This is a presentation delivered to the Investment Network on Measuring the Effectiveness of DC Pensions. The premise is that you can\'t begin to judge the efficacy of plans without understanding and comparing actual individual member outcomes.

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In God We Trust All Others Bring Data 100702

  1. 1. “In God we trust – all others bring data”<br />Measuring the Effectiveness of DC<br />02 July 2010 – The Investment Network<br />Nigel Aston<br />
  2. 2. Measuring the effectiveness of DC<br />The only game in town<br />Play the market<br />Playing safe<br />The winner takes it all<br />A level playing field<br />
  3. 3. The only game in town<br /><ul><li>It’s a DC world
  4. 4. Evolving market
  5. 5. Outcomes are what counts
  6. 6. The one with the most money wins
  7. 7. It’s a team game
  8. 8. The journey as well as the destination
  9. 9. All players can win</li></li></ul><li>Who are the players?<br /><ul><li>Member
  10. 10. Trustee/governance board
  11. 11. Sponsor
  12. 12. Consultants
  13. 13. Providers
  14. 14. How do they play?
  15. 15. Skill or luck?</li></li></ul><li>Measuring the effectiveness of DC<br />The only game in town<br />Play the market<br />Playing safe<br />The winner takes it all<br />A level playing field<br />
  16. 16. It’s not just the address – it’s the number of houses and hotels too<br />PARTICIPANT A (‘Tim’)<br />These significant differences are not captured in current processes<br />PARTICIPANT B (‘Tom’)<br />Good investment products do not make a good service, <br />measuring outcomes is critical<br />
  17. 17. Francois Huber<br />
  18. 18. Insight from data<br />If you look into a bee hive, it might look like all the bees are doing the same thing. They aren’t.<br /><ul><li>There are three different types of bee.</li></ul>Quantity of honey<br />Quality of honey<br /><ul><li>Understanding different segments and underlying behaviour drives improved efficiency in the hive.
  19. 19. Even within the same type, behaviour varies based on other factors, e.g. demographics, environment.</li></ul>8<br />
  20. 20. 2 years risk / return by member<br />There is significant dispersion in the outcomes achieved by members, including those relying on the default strategy. <br />2 Years Annualised Return<br />Median Risk = 22%<br />2 Years Annualised Risk (Volatility)<br />Median Return = -16%<br />SOURCE: PensionDCisions<br />9<br />
  21. 21. Personal performance benchmarking<br />
  22. 22. Measuring the effectiveness of DC<br />The only game in town<br />Play the market<br />Playing safe<br />The winner takes it all<br />A level playing field<br />
  23. 23. It’s not about herding – but think about the outliers<br />
  24. 24. Who are your outliers?<br />Median Risk<br />RETURN<br />Median Return<br />RISK<br />FTSE PensionDCisions DC Index - Growth<br />
  25. 25. Cloud watching<br />
  26. 26. Cloud watching<br />
  27. 27. Measuring the effectiveness of DC<br />The only game in town<br />Play the market<br />Playing safe<br />The winner takes it all<br />A level playing field<br />
  28. 28. PensionDCisions default data<br />UK Product Providers<br />US Plan Sponsors<br />UK Plan Sponsors<br />Launched in 2010:<br /><ul><li>65 plans
  29. 29. 1.7m members
  30. 30. $163bn</li></ul>Launched in 2007:<br /><ul><li>62 plans
  31. 31. 630,000 members
  32. 32. £10.7bn</li></ul>Launched in 2008:<br /><ul><li>16 product providers</li></li></ul><li>Attitudes and reliance on default <br />Changes in Default Solutions<br />Note: Left diagram shows only plans who responded to both the 2009 and 2010 surveys. Right diagram shows all plans in the 2010 survey.<br />
  33. 33. Measuring effects of asset allocation<br />Proportion of Customised (White Labelled) Solutions UK vs. US<br />
  34. 34. Measuring the effectiveness of DC<br />The only game in town<br />Play the market<br />Playing safe<br />The winner takes it all<br />A level playing field<br />
  35. 35. The FTSE PensionDCisions DC Index Series <br /><ul><li> Reflects investment decisions made
  36. 36. Objective measure of asset allocation and glide path
  37. 37. A target date maturity approach
  38. 38. Shows risk and return throughout the lifecycle
  39. 39. A new level of transparency
  40. 40. FTSE PensionDCisions Growth Index Saving for retirement
  41. 41. FTSE PensionDCisions 2020 Index
  42. 42. FTSE PensionDCisions 2015 Index Approaching retirement
  43. 43. FTSE PensionDCisions 2010 Index
  44. 44. FTSE PensionDCisions At-Retirement Index At retirement</li></ul>Asset class weightings obtained from PensionDCisions “Sponsor Default Survey”<br />Contains all asset classes with more than 1% aggregate weighting across the sample<br />
  45. 45. The role and position of the index series<br />What is does:<br /><ul><li>A factual basis to understand risk and return
  46. 46. A yardstick for stakeholders to calibrate decisions
  47. 47. An independent platform against which consultants and asset managers can demonstrate value added
  48. 48. Develops over time to incorporate other asset classes
  49. 49. Reflects various points in the life cycle
  50. 50. Offers a true tracking opportunity</li></li></ul><li>The role and position of the index series<br />What it doesn’t do:<br /><ul><li>Replace the investment objective
  51. 51. Express opinion about what is right
  52. 52. Encourage herding:
  53. 53. Diversity is set to increase
  54. 54. Monitoring risk alongside return is critical
  55. 55. This index and the NEST default will be two reference points on a risk/return continuum</li></li></ul><li>Index Series Historical Graph<br />
  56. 56. Measuring the effectiveness of DC<br />The only game in town<br />Play the market<br />Playing safe<br />The winner takes it all<br />A level playing field<br />
  57. 57. Index Series Historical Graph<br />

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