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Strategy

Uncharted territory

Uncharted territory

By Pádraig Floyd
Wednesday 16th December 2015

Industry reports point to a steady increase in fiduciary management among pension schemes of all sizes. But, as Pádraig Floyd discovers, this growth continues alongside low rates of mandate monitoring.

Fiduciary management is one of those industry terms that are difficult to define, because there is little consensus about what it is, who does it or who is actually using it.

That said, there has been consistent growth in this area of investment consulting/execution over the last five years – growth which continues unchecked.

PROOF, BUT POSITIVE?

The Aon survey for 2014-2015 released in September shows the strongest growth among schemes with ÂŁ1bn or more in assets. It also shows that take-up rates have increased to 46% in 2015 (18% in 2011 and 37% in 2014) and hitting 51% for schemes with ÂŁ1bn or more using full or partial fiduciary management. Smaller schemes continue to favour a fully outsourced approach.

The KPMG study will reflect these developments. Mandates are up, as are assets under management, and there is more sophisticated purchasing of fiduciary management services.

Now much of this is due to larger schemes seeking assistance with very specific carve outs, but there is some evidence that smaller funds are asking harder questions of the market.

However, there remains a low level of monitoring of mandates, says Anthony Webb, head of fiduciary management advisory at KPMG. “The level of third-party oversight is proportionate to last year, though there are more mandates in the market,” he says.

EVOLUTION

Webb says while there may be a low level of independent advice within certain parts of the market – sub-£250m schemes, for instance – there is anecdotal evidence this is changing. Certainly, there are also more firms offering these monitoring and review services – more than the market can support, he suggests.

When it comes to tendering, KPMG says there is no change in consultants taking the lion share of the market, though more independent advice is being given at the large end of the market.

Peter Steyn, head of delegated investment services, UK, Towers Watson, agrees with the KPMG findings, saying there has been significant growth at the smaller end and selective growth in the larger mandates.

However, Christy Jesudasan, senior client director at Kempen Fiduciary Management, says herd mentality is still prevalent in the UK market – when something is in fashion, schemes tend to follow it and consultants are still leading clients down the road to fiduciary without formal tenders.

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