Although pension funds have come a long way in their use of ETFs, “ETF adoption in the pension industry is still in its infancy,” according to Adam Schenck, Managing Director and Managing Director of Milliman Chicago-based Financial Risk Management LLC, which underadvises approximately $6.6 billion in ETF assets for Transamerica DeltaShares and Innovator ETFs.
“While some pensions have started to get a decent amount of their beta from passive ETFs, and a more recent trend of exposing themselves to ESG strategies via the ETF envelope is gaining traction, the surface has barely been scratched with how much pensions can allocate to ETFs,” Schenck said in emailed comments to Pensions and investments.
San Francisco-based Steve Laipply, managing director and U.S. head of iShares bond ETFs at BlackRock, said the fund manager expects the use of bond ETFs by asset owners and managers to continue to grow. grow, driven primarily by growing awareness of “their ability to make portfolio construction more agile and efficient.”
Bond ETFs can provide quick access to markets and help investors increase efficiency, reduce costs and increase liquidity, Laipply said in comments emailed to IP.
“In addition, owners of longer-term assets are beginning to shift their perception of bond portfolios from a simple list of bonds to a set of risks, including betas and factors,” he said. -he declares. “Ultimately, these risks can potentially be represented more effectively by bond ETFs rather than individual bonds.”
Pension fund adoption of ETFs “is long overdue, especially when ETFs are the most effective solution,” said Elisabeth Kashner, a Berkeley, Calif.-based vice president and chief investment analyst. global funds at FactSet Research Systems Inc.
“It’s good to see some pensions using ETFs,” Ms Kashner said.
Chicago-based Ben Johnson, director of global exchange-traded fund research for Morningstar Inc., cited a combination of “inertia and career risk,” when asked why pension funds don’t did not use ETFs more.
“Inertia is a very powerful force in the asset management industry, and it’s just about investing in general,” Johnson said, adding that in the absence of a compelling event such as employee turnover, there’s often “very little incentive to change your ways,” and the tendency for pension funds to conduct business as they always have has slowed their adoption of ETFs.
Another reason has to do with the stakeholders involved, he said.
“A lot of times, large pension plans hire pension consultants, and pension consultants have a vested interest in frankly making things more complicated than they need to be,” he said. “It’s going to be very difficult to make a living as a retirement consultant just walking around your clients and recommending that they invest in a portfolio of three to five very broadly diversified ETFs at very low cost.”