Survey Shows Some UK Pension Managers View Fiduciary Management With Distaste

(March 14, 2011) — While providers are overseeing $69 billion of assets for more than 500 UK institutional clients, not all pension fund managers are fully in favor of fiduciary management.

According to a survey by Pensions Management and Pensions Week, set to be released in April, leading managers responded with the following when asked “how do you view fiduciary management?”

• Inappropriate for the trustee model (8%)
• A useful way of dealing with the complexity of fund management (38%)
• Unproven (23%)
• Needs to be investigated further (15%)
• Use in-house investment expertise instead (15%)

“We should expect to see large consulting firms face potential conflicts of trying to significantly grow their businesses in two competing directions,” said Ashish Kapur, head of European institutional solutions at SEI, the Financial Times reported. SEI recently expanded its fiduciary management team, hiring three senior-level experts in liability driven investing (LDI), corporate finance and risk management.

A recent article by the FT further noted that fiduciary management may have a more prominent role among smaller defined benefit schemes, such as the $45 million pension plan of Habitat UK, which appointed SEI as its fiduciary manager in 2009. Malcolm Curzon, chairman of trustees at the Habitat UK Pension Scheme, told the news service that their model allows for a more cost-effective and responsive investment approach, where the trustees set the investment strategy and have the final word on investment policy. Meanwhile, SEI is responsible for providing advice on strategy, implementing the asset allocation and hiring and firing fund managers, the FT reported. The result: A decrease of about 25% in fees for the scheme, which is now invested in a broader range of specialist funds.

The perception of fiduciary management by UK pension managers contrasts with a report last year by one of the country’s biggest pension advisory firms that revealed that time-pressured trustees are unable to spend sufficient time on investment decisions. The study by consultancy firm Aon Hewitt discovered that UK-based pension boards, ironically, lack investment expertise. Spokesman Colin Mayes told aiCIO that the findings of the research should not be perceived as a criticism, but should instead highlight the intense pressure that pension boards are facing and the need for assets to be put to work more effectively.

“Highlighting the results of our research is not intended as a criticism – but a reality check is needed if assets are to be put to work more effectively,” said Zuhair Mohammed, head of delegated consulting at Aon Hewitt, in the research. He explained that continued economic uncertainty and highly volatile financial markets are stretching the already limited resources of most trustee boards to the extreme. “What is clear from our survey is that the time devoted to investment matters and the level of investment expertise permanently on trustee boards is simply falling short of what is required,” Mohammed stated.