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Pensions shock creates major opportunity for wealth & fund firms

by Dylan Lobo on Mar 20, 2014 at 14:49

Pensions shock creates major opportunity for wealth & fund firms

The shock overhaul of the pension system in the Budget potentially offers a huge opportunity for fund and wealth managers.

In what was dubbed the biggest pension overhaul in living memory, chancellor George Osborne said people would no longer be forced to buy an annuity on retirement, while the income required for flexible drawdown was cut from £20,000 to £12,000.

While the news has major implication for life firms, which took a hammering on the stockmarket in the aftermath, it could be a big positive for specialist fund and wealth managers.

In a detailed note on the sector, Bank of America Merrill Lynch (BoAML) said that while it does not think the £12 billion annuity market will fall to zero, it is inevitable that a portion of assets will move to managed assets.

The investment bank believes strong brands like JupiterHenderson and Schroders have a competitive advantage in this new world.

‘By and large, we suspect that people will be more tempted by more risk-managed products, such as multi-asset or balanced funds, or possibly some type of hedge product,’ BoAML analysts Philip Middleton and Jonathan Richards said in their note.

‘Typically, the default fund of a defined contribution (DC) scheme would be some kind of multi-asset or balanced product. We would guess a typical retiree might consider a less volatile version of one of these.’

The duo added: ‘This would reward providers who have high quality multi-asset/risk managed/balanced products as well as strong brands.’

Meanwhile RBC analyst Peter Lenardos reiterated outperform ratings on Jupiter, Henderson and Schroders. ‘We believe asset managers with exposure to UK retail investors should benefit most,’ he said in a note.

Lenardos also expects the likes of GAM, Man Group and Ashmore to underperform due to their limited exposure to the UK retail market.

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