PPF to Squeeze Consulting Fees

One of the UK’s largest pensions is scaling back the percentage of spend it is allocating to consulting firms.

(April 29, 2014) — The Pension Protection Fund (PPF), the UK’s lifeboat for bankrupt company pensions, is to squeeze spend on investment advice, while ramping up expenditure on asset management fees.

In its 2014 Strategic Plan, published today, the PPF outlined its expected expenditure over the next three financial years. It showed investment management fees would rise around 40% from £85.4 million in the financial year 2013/2104 to £120.6 million in 2016/2107. This figure reflects a predicted 40% rise in assets under management from £15.6 billion to £21.8 billion.

However, the PPF said fees for investment advisory would grow by just 25% from £1.6 million in 2013/2104 to £2 million in 2016/2017. Across all advisory segments, including legal and audit functions, expenditure was predicted to grow from £6.2 million to £6.5 million over the next three financial years, marking barely a 5% increase.

“We continue to use external advisers where this represents value for money and where we are obliged to do so,” the plan document said, “and we plan to contain these costs at current levels which represents a real terms saving in spite of continued significant growth in the business.”

The fund defended its predicted investment spend increase: “Whilst the weightings to alternative assets impact fees, the overall cost is contained (as a percentage of assets under management) as we benefit from tiered fee scales and tighter negotiations. Custodian fees are higher, now including collateral valuation costs previously included in the fee charged by our liability-driven investment manager.”

Many large European investors have been scaling back their use of consulting firms for “blanket coverage” of their investment portfolios in recent years, favouring more project-based relationships.

Several large UK pension funds have moved to become registered by the Financial Conduct Authority, which allows them to make investment decisions without having to obtain permission from a consulting firm or authorised third party advisor.

The PPF alluded to potentially bringing a full range of asset management capability in-house, but said no decision had yet been made.

Read the full strategic plan here.

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