Sponsors driving fid man switch to reduce risk

There has been a marked increase in the number of fiduciary management mandates awarded since 2010, according to data from Financial Times service MandateWire (see graph).

The majority (78 per cent) of institutional investors will increase the amount they delegate in the next 12 months, a recent survey by Russell Investments has found.

Much of this interest has been driven by sponsors looking for ways to reduce their pension risk and lower contributions, but trustees have been reminded the ultimate responsibility rests with them.

“In every instance where we have been appointed as a fiduciary manager over the past few years, the employer has had a big influence,” said Shamindra Perera, head of pensions solutions for EMEA at Russell Investments.

This is a departure from other areas, such as investment and advisory decisions, where the sponsor does not tend to get involved, he added.

Sponsor involvement in their pension plans is a growing trend. “There is a general desire to influence the strategic decisions of the scheme,” said Nick Secrett, pensions director at consultancy PwC.

There is a growing recognition that the role of trustees has changed to one of more active involvement on the investment side, and sponsors are keen to monitor decisions.

“[While] it’s the trustees’ legal responsibility to make the investment decisions… [sponsors] would like to be comfortable – since they are putting the money in – that sensible decisions are being made,” he said.

Some sponsors see fiduciary management as a step towards buyout. If an employer with that ultimate objective feels the current governance arrangements are not sufficient to achieve this goal, delegation is an option, said Anne Kershaw, associate director at Muse Advisory.

“Sponsors may say ‘We need to get our house in order, get better at decision-making, get better at risk management and let’s try to stop this great big liability from swinging around and biting us all the time’,” she said.