The 2011 KPMG LDI Survey published today revealed the £240 billion liability-driven investment (LDI) market is turning into oligopoly with more than 80 per cent of the assets being managed by just three providers.
Despite increasing demand from pension funds, the number of providers dropped to 15 in 2010 from 23 in 2007, the report revealed. The number of providers offering pooled LDI services also dropped to nine from 14 during the same period.
Though the number of solutions has increased over time and there is healthy competition, the situation may change in future if the number of providers drop further, the survey warned.
“There is now something of an oligopoly operating under which just three fund managers are looking after the lion’s share of assets in both the pooled and segregated categories.
“We do not believe that the current concentration is hindering competition as there are a good range of alternatives in the market,” said Simeon Willis, principal consultant, KPMG investment advisory group.
The survey covered 600 different mandates, where investment managers bought long maturity bonds and swaps to hedge against inflation and interest rate risks.
Only two asset managers accounted for more than 70 per cent of the total AUM (assets under management) in segregated arrangements, where assets are managed on a bespoke basis, while in the pooled LDI fund segment, two managers accounted for more than 80 per cent.
For funds with assets under £300 million, Bluefin had launched a scheme at the beginning of this year.
“Investment managers are responding to growing client demands by offering increasingly flexible and tailored solutions … We are seeing a continuing trend for pension schemes to adopt a plan for reducing risk over time which may lead to a more even split of LDI assets across fund managers,” observed Tom Brown, head of investment management at KPMG Europe.