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UK Pension Fund Management After Myners: The Hunt for
Correlation Begins

David Blake


The Myners Report will have a number of significant consequences for
pension fund management and performance measurement in the UK.

It changes the way in which assets are selected. The strategic asset
allocation will have overriding importance in pension fund management.
Asset classes will be selected on the basis of their match with liabilities
in terms of correlation and volatility, rather than on the basis of expected
return. Every pension scheme will have a scheme-specific funding standard
that reflects the maturity structure of the liabilities of the scheme.

It changes the role of the fund manager. A hierarchical relationship will
develop between the investment advisor, actuary and fund manager.
The investment advisory function assumes a primacy over the actuarial
and fund management functions.

It changes the way investment performance is measured.
Liability-driven performance measurement and attribution will replace the
existing performance measurement framework in the UK. The passively
managed components of the pension fund will be judged on the costs of
implementation. Only the performance of the surplus assets will be measured
on a conventional basis.

The Myners Report is summarised and an illustrative statement of investment
and transparency statement are presented.