Nearly one in five schemes use FM as green issues come to the fore

The popularity of FM was highlighted in an annual KPMG 2019 survey, published on Thursday, with a total of 946 mandates in the UK boosted by an additional 80 schemes opting for this service over the year. 

Nearly one in five pension schemes (17 per cent) were found to be using an FM, a 10 per cent rise in mandates compared with 9 per cent in 2018, helped by a pick-up in “partial” mandates, which the actuaries said looked moribund in previous surveys.

But some schemes may have delayed action because of the Competition and Markets Authority review last year, indicating further pent-up demand for next year.

Commenting on the analysis, Anthony Webb, head of fiduciary management research at KPMG, said: “We expect next year’s survey to capture a surge in tenders as some early adopters are required to go back to the market and retender to meet the CMA’s requirements. This may lead to a wider distribution across providers.”

There was also growing interest from pension fund trustees on environmental, social and governance matters, with 98 per cent engaging with their FM on ESG and 87 per cent undertaking a “light touch” review, compared with just under half (42 per cent) who did not consider it all in 2018.

Yet many trustees were heavily guided by their FM providers’ default ESG positions, with only a fraction (1 per cent) taking bespoke action. 

Mr Webb said: “It’s encouraging to find that ESG factors are now firmly on the agenda for trustees and investment committees when discussing strategy with fiduciary managers.

"However, while their concern matches growing public appetite in this area – combined with regulatory updates – we’ve seen little evidence so far of changes to behaviour.” 

The research also asked FM about their endgame plans once they have reached full funding on a long-term objective.

Nearly half (44 per cent) said they would look for a buyout, while just over a third (38 per cent) suggested a run-off. 

The survey also showed FM oversee a relatively high level of liability hedging, with around seven in 10 mandates targeting 80 per cent hedging or higher. Only 27 per cent of mandates had return targets of liabilities plus 1.5 per cent or less.

There was also a surprising fall in the use of independent advice for fiduciary monitoring, with 61 per cent of schemes opting to take advice, compared with 66 per cent in 2018. 

The KPMG survey, with data as at June 30 2019, was based on responses from Aon Hewitt, BlackRock, BMO, Cambridge Associates, Cardano, Charles Stanley Asset Management, Goldman Sachs AM, Kempen, Legal & General, Mercer, River & Mercantile, Russell Investments, Schroders, SEI, State Street Global Advisors and Willis Towers Watson.