Hargreaves Lansdown assesses Friend Life’s decision to appoint Schroders to manage its flagship pension fund

19th March 2014

Hargreaves Lansdown has given its assessment of insurer Friends Life’s decision to switch management of its pension fund from Foreign & Colonial to Scrhoders by the end of the year.

In all £12.2bn is assets will transferred including £12.2 billion of equity and multi-asset funds including the £3.5bn Friends Life managed pension fund.

HL says that this fund has underperformed its sector by 8% since the beginning of 2010 (returning 28% compared to 36% from the ABI sector average). It is commonly used as a default fund in Friends Life company pension schemes.

Responsibility for the fund will pass to Schroders from the end of 2014. Schroders have a strong multi-asset team, headed by Johanna Kyrklund, and comprised of over 100 investment professionals.

HL says it rates this team highly, though the mandate of the Friends Life managed fund is likely to restrict how they can invest, which may make it difficult for them to outperform.

Laith Khalaf, Head of Corporate Research says: “Savers need to pay close attention to how their pension fund is doing, because performance can have a huge impact on their final pension income. Investing in a good fund rather than a poor fund can mean the difference between a comfortable retirement, and struggling to make ends meet.

“Funds like Friends Life Managed don’t stray too far from other funds in their sector in terms of where they invest. This limits their potential for outperformance. If investors want above-average returns, they need to choose a skilful manager who is able to invest according to their convictions.”

HL suggests that investors may wish to consider investing with Schroders.

The note continues: “We think pension savers would do well to invest with the Schroders multi-asset team. We would suggest they consider the Schroder managed balanced fund, which gives the manager a good deal of flexibility to invest where she sees the best opportunities.

“The fund has returned 47% since launch in January 2007, compared to the ABI sector average of 37%.  It has an asset allocation overlay which it then implements by investing in Schroders’ retail fund range, harnessing the investment skills of managers like Philip Matthews (UK Alpha Plus), Leon Howard-Spink (European Alpha Plus) and Andrew Rose (Schroder Tokyo). Johanna Kyrklund uses the asset allocation to protect the fund when she sees fit, and expects these underlying managers to contribute to returns though stock selection, making for a tantalising combination of top down and bottom up”.

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