The paper, entitled 'Auto-Enrolment: Risk Management for Default Investment Strategies', outlines a framework through which it believes fiduciaries must manage DC default investment options going forward. PIMCO's recent research showed that, contrary to popular market wisdom, capital market losses in default investment strategies do negatively affect DC members' savings and investment behaviour.
Will Allport, vice president of defined contribution for Ireland and the UK at PIMCO and author of the report, said: "The current designs of DC default plans are likely to result in disappointing outcomes, if four fundamental factors are not addressed. First, current default funds do not have enough diversification. Second, there is little evidence of inflation protection in the default design. Third, typical DC strategies do not have enough downside protection from extreme capital market outcomes that may affect a DC member's savings behaviour and money-weighted returns. It is up to asset managers like us to create some downside protection to minimise black swan events, but, at the same time, maintain the upside potential. And finally, there needs to be a de-risking approach sensitive to the prevailing market environment."
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