Investment experts have reported that the secondary market for fiduciary management is warming up, as early adopters begin to review the performance of their managers.
Cash management company Loomis UK’s pension fund decided to switch its fiduciary manager from Mercer’s delegated consultancy business to asset manager Russell Investments’ fiduciary business, the latter announced earlier this week.
In the manager’s press release, the company’s finance director Tim Gibbs was quoted as saying one of the reasons it adopted fiduciary management was to get “clear accountability for the outcomes of the pension fund”, and that Russell had a “culture of accountability”.
If an incumbent is marking their own scorecard, do the trustees really understand how well a job they are doing?
Brian McCauley, Buck Consultants
Consultants reported that other schemes were discussing a manager change, though not yet in large numbers. Anthony Webb, head of fiduciary management research at consultancy KPMG, said: “It is the start of a bit of a trend, but it is very much early days. Anecdotally, we have examples where trustees are [talking] about making a change but haven’t, or are thinking about reviewing their managers.”
Monitoring of managers has developed as the market has grown, with some putting a spotlight on consultancies providing delegated investment management.
Research by the consultancy, which itself provides independent monitoring for fiduciary management contacts,found that more than half of mandates (53 per cent) in the year to June 2013 had external or internal expertise to monitor their provider. This was up from 30 per cent for the same period the year before.
Brian McCauley, head of fiduciary manager evaluation at Buck Consultants, said: “We are coming up to some of those [reviews] and one of the concerns could be that if an incumbent is marking their own scorecard, do the trustees really understand how well a job they are doing?”
McCauley added: “The willingness to review what the marketplace has to offer, especially given how it is evolving so rapidly, is starting to grow.” He acknowledged this was not happening immediately but that there was interest in this area.
But not all market participants are seeing this sentiment shift. Sion Cole, head of client solutions for Aon Hewitt’s fiduciary business, said its 2013 market-wide survey showed nine in 10 schemes with fiduciary management (91 per cent) were happy with their current provider, and its work on this year’s survey has seen even more positivity, adding: “The actual number [that are] satisfied has gone up.”
But he added one-off changes could be a result of schemes’ requirements changing. “Perhaps more early adopters are coming to the stage where they have a different requirement of their fiduciary manager.”
Those pension schemes that put in place fiduciary management three years ago are now beginning to review those set-ups.
Ian Barnes, head of UK & Ireland at UBS Global Asset Management, said: “The fact that the first people that have moved into fiduciary management are now reviewing and potentially replacing with another manager is a sign that transparency is coming into the market.”
He added transparency became less of an issue when things started to go wrong, as it was “obvious” when poor decisions had been made.
Shamindra Perera, head of the pensions solution group at Russell, said the nature of early adopters of fiduciary management, who tended in his view to be more proactive, would cause them to review “if things are not going well”.
“People with better governance, people who are more proactive than the average, you would think those characteristics would lead them to review,” he added.
Additional reporting by Lisa Botter
