Fiduciary management evaluation tool unveiled

The company will provide schemes with a similar service to its existing proposition but applied for the first time to delegated consultants rather than fund managers.

The fiduciary managers will be evaluated on three levels, said chief executive Rick di Mascio. The first is assessing the strategic asset allocation against changes in the liabilities.

The second is to assess the tactical decisions taken around that allocation – looking at whether deviations from the strategic allocation adds value.

The final step is to look at the implementation within asset classes, assessing decisions on fund manager selection, whether to go active or passive within a particular asset class and specific asset buys.

“Our tool will be rolling out this year and will measure fiduciary managers on this basis,” said di Mascio.

“We have a pilot project going on with a large, sophisticated client fund, and will bring it out to the wider market later this year.”

Dan Melley, a principal at Mercer in charge of dynamic derisking, said the company uses a similar three-pronged approach internally – starting with the funding level, then breaking down components of the portfolio, and finally looking at each individual asset class.

It is not fair, he said, to simply judge the performance of a fiduciary manager on a scheme’s funding level, unless they are in full investment control.

Roughly half of Mercer’s clients will place some restrictions, such as limiting global equities investment to passive funds, banning property from the portfolio, or not using derivatives before the corporate sponsor gives the green light.

He said: “We’re increasingly being given more space, but even among those ones with more leeway probably about half of them are still putting in some restrictions in there.”

Some Mercer clients kept track of how their previous benchmark – set before handing over to the fiduciary manager – had performed over the same time.

“It’s all hindsight, but it is another way of looking at it,” he added.