Talk to Canadian plan sponsors about exchange-traded funds (ETFs) and many will tell you the main draw is liquidity—you can get in and out with relative ease. Factors such as cost don’t really enter into the discussion mainly because, for now at least, there are cheaper options available. When it comes to pension fund investing, size matters, especially when you’re moving huge blocks of cash around.
This article suggests U.K. pension funds—especially the smaller ones—are turning to ETFs more rapidly than their counterparts here in Canada. Awhile back, PensionFundsOnline quoted a few providers talking about the expanding reach of ETFs within the U.K. pension space, particularly among self-directed or small plans.
Indeed, the article notes that smaller pension schemes are using ETFs to access new asset classes they normally wouldn’t be able to afford. Pension schemes have been using ETFs to gain exposure to hard-to-reach segments of the market—some areas of emerging markets, for example, that can be difficult to get at directly. And many pension schemes are using them to complement actively managed strategies and to take a tactical position in a specific market.
But while providers in the article talked about the benefits of ETFs, they do point to one major barrier to widespread adoption: consultants. While ETFs are a bigger part of the pension scene in places such as Europe and the U.S., ETF providers complain that the U.K. lags far behind largely due to consultants that don’t take them seriously.
According to Roel Thijssen, then managing director at BlackRock and head of iShares Benelux & Middle East, consultants tightly control the U.K. pension space, and adoption of ETFs has been happening mainly among those smaller and mid-size pension schemes that aren’t as tightly bound to consultants.
The big problem is that consultants don’t have the knowledge or feel comfortable using ETFs, said Thijssen—and that needs to change for more pension schemes in the U.K. to begin using the products. Denying their existence, he points out, means that consultants aren’t giving their pension fund clients the best advice.
But if consultants are gatekeepers to pension assets, ETFs appear to be getting through via a different route—through money managers that use them while managing pension assets. So while pension schemes in the U.K. might not be using ETFs directly, they’re still getting indirect exposure via their active managers. Gatekeepers aside, ETFs are fast becoming a part of the pension landscape across the pond.