Diversification in practice: Unlocking long-term returns for pension schemes

XPS’ latest FM Review (1) demonstrates the benefits of diversification in delivering better long-term outcomes. 

A review of different fiduciary manager growth portfolio returns vs volatility found that higher returns were accompanied by higher volatility over one year, but that, over five years, this relationship didn’t necessarily hold: “While equity returns can be the primary driver of risk-adjusted returns in the short term, in the long-run, the benefits of diversification are clear.”

TPTIM’s Investment Manager, Simon Moss, explains: 

“The bulk of providers sit on or very slightly above the efficient frontier of equity to bonds. Short-term performance may be strong, especially if equities have a good run, but this is unlikely to deliver the best outcomes over the long-term without proper diversification. In our experience, long-term outperformance rarely comes from one source of return.”

Adding diversification might sound simple, but achieving it in practice can be difficult, and can result in portfolios that are more complex to manage.

Simon adds:

“Without the right level of expertise, it is hard for a scheme to genuinely diversify risk. A lack of budget, time or knowledge can therefore put better long-term outcomes out of reach”.

But is there a way for schemes to achieve diversification more simply?

At TPTIM, we believe our investment strategies capture true diversification. We’ve made this simpler to access by launching our TPT fund range. These funds - our core ‘building blocks’ - are designed to provide exposure to 22 managers and more than 20 underlying investment strategies, covering both public and private investments, via just eight funds. This allows schemes of any size to access investments that might not otherwise be available to them, and to do so simply.

These funds reduce complexity for clients, while giving them access to a wide range of asset classes and underlying managers. Combined with our long history of investing and deep understanding of markets and performance drivers, we have experience of accessing opportunities at the right time in the investment cycle, taking advantage of opportunities as they arise.

How can trustees ensure that their investments are targeting long-term growth?

Private markets are key pieces of the puzzle but, Simon adds, they’re not a panacea. Trustees should rightly remain cautious of entering into non-best-in-class mandates, or following the herd into ‘assets-du-jour’ that are often overpriced or contain pockets of asymmetric risk.

“The key question, for trustees, is what risk factors are their investments exposed to, and how will these factors be rewarded over the long-term?”

They should also check with their investment consultant or fiduciary manager, on:

• consistency of valuation procedures and outcomes
• concentration of underlying holdings (such as to industries, sectors or geographies)
• the level of exposure to certain risk factors, over and above simple asset class diversification
• liquidity of their private market assets - can schemes sell or rebalance, or are they stuck in their allocations for a number of years?

TPTIM provides fiduciary management services as a standalone solution, or as part of TPT’s DB Multi-Trust.

(1) https://www.xpsgroup.com/news-views/insights-briefings/fiduciary-manager-review-2026/

This growth portfolio returns vs volatility analysis, carried out by XPS, is based on historical data and may not be indicative of future outcomes. It is based on survey data, covering over 90% of the UK fiduciary management market, and reviews 21 growth portfolios managed by 15 fiduciary managers in 2025.

This content is intended for professional audiences only and should not be relied upon by individual scheme members. This article is provided for information purposes only and does not constitute financial advice, investment guidance, or a recommendation to buy or sell any investment. Past performance is not a reliable indicator of future results. Investments can go down as well as up, and you may get back less than you invest. If you are considering making an investment, you should seek advice from a regulated financial adviser.