Myners says active fees ‘don’t add value’

The financial services secretary claimed too many schemes are paying over the odds for stock picking that “does not add value”.

Approximately two-thirds of equity exposure in UK pension schemes is actively managed, at an average cost of six times the price of passive mandates.

Addressing an audience at the National Association of Pension Funds headquarters, Myners said: “I’m not sure why so much resource and commitment goes into stock-picking... Some could be put into governance.”

But his comments fly in the face of industry consensus, with new research showing more than three-quarters of schemes believe active management will be “significant or vital” over the next two years.

A Clear Path Analysis (CPA) report, to be published on April 20, also revealed 36% of trustees, investment managers and finance directors anticipate more active managers coming to market, with the growth of defined contribution (DC) schemes.

“Originally we found pension trustees showed mixed interest and concern for active management solutions for DC schemes,” said CPA managing director Noel Hillmann.

“However, the recurring comment was that DC was coming of age and active management, with its innovative and original approaches to investment, would drive greater investment choice which near all felt was a positive development.”

Meanwhile, according to Bfinance research published last week, 23% of schemes worldwide plan to increase their active equity allocation this year, compared to just 19% growing their passive allotments – a reversal of the same survey’s findings last year.

But the poll also showed base fees fell last year, with 28% of respondents claiming to be paying less now and only 3% paying more. Furthermore, 40% expect base fees to continue falling in 2010.

Bfinance chief executive David Vafai said: “Investors are happy to pay fees to active managers as long as they perform.

“No matter how you look at it, selecting the right manager is crucial.”