Non-disclosure agreements: schemes give mixed reaction

Non-disclosure agreements can be signed when schemes appoint a fund manager to invest their assets. The National Association of Pension Funds has said this leaves them unable to compare what they are being charged against their peers.

Peter Morris, director of pensions at the £11.1bn Greater Manchester Pension Fund, said the scheme has negotiated “most favoured nation clauses” in some of its agreements with fund managers.

These clauses generally mean if a fund manager offers a more favourable fee deal to another pension scheme for a comparable investment contract, the scheme negotiating should access it at the same price.

“We have clauses in the agreements that give us confidence on the pricing we pay and we do comparisons with others,” Morris said. 

Morris said being a larger fund the scheme benefits from economies of scale and uses the national procurement framework to obtain value.

“We are tendering at the moment for an actuary and we’re using the national framework to undertake that procurement process,” he added.

Phil Triggs, strategic finance manager at the £2.2bn Surrey County Council Pension Fund, said there is a fine line between the importance of transparency over issues such as fees within local government pension schemes, as well as the need for certain matters to remain confidential between fund managers and their clients.

“Issues such as fees I would tend to regard as being confidential, in terms of pricing,” he said.

Triggs said the scheme would rely on its investment consultants’ knowledge to advise what constitutes good value for fees.

Ciaran Mulligan, head of manager research at Buck Consultants, said these types of clauses were more common 10 to 15 years ago but are now more unusual.

“Fund managers are less willing to be tied to that sort of clause and want more flexibility on charging clients what is appropriate from a fund manager’s perspective,” he said.

Guy Sears, director of risk, compliance and legal at the Investment Management Association, said it has not seen any data on how often non-disclosure is used in agreements between pension funds and asset managers, but a number of its members who are active in this area have reported rarely using them. 

Sears said: "The investment management agreement between an asset manager and any client will typically include a confidentially clause requiring each party to keep confidential any information or material communicated between them, including the terms of the agreement.

"This is similar to commercial arrangements that exist in many business sectors. But there would be nothing to stop a pension fund, or any other client, refusing to hire a manager who insisted on fee confidentiality."

Richard Greening, chair of the investment subcommittee at Islington Council's pension scheme, said non-disclosure agreements are not a key issue for schemes. "The main issues are that there isn't consistent reporting of costs."

Mulligan added that in his experience the number of fund managers requesting non-disclosure agreements over fees is in “single digits", and that he has not seen managers refuse to go through with a deal as a result of a scheme’s reluctance to enter into such an agreement.

He said he understood why some fund managers would want to put in place these clauses, but added: “We would probably encourage, in the interests of transparency, for managers not to go down that route."