We use cookies to support features like login and allow trusted media partners to analyse aggregated site usage.
To dismiss this message and allow cookies to be used, please click "Continue".

Continue

Opinion

Twitter board

Follow us
  • My week on Twitter ūüéČ: 4 New Followers. See yours with https://t.co/mCw3VcMQGw https://t.co/odYllgQghg2 days ago
  • Friday View: Border to Coast launches UK equity tender - Rentokil Trustee faces fine - Gleeson directors banned - P‚Ķ https://t.co/wx2SJ0bGfG4 days ago
  • Shareholder engagement: It‚Äôs good to talk For responsible investors talk isn‚Äôt cheap. Not only does research sugges‚Ķ https://t.co/imwrezJuKJ4 days ago
  • Friday View: PA's DB scheme signs buy-out deal - PIC invests in Midlands housing association - Newton Video on Emer‚Ķ https://t.co/GbWDdyENlN11 days ago
  • RT @minerva_ESG: Hey, all #ESG and#corpgov tweeps, lend a hand to @portfolio_inst important opportunity to support investors' understanding‚Ķ12 days ago
  • We want to know your appetite and understanding for ESG! Please click the link to take our 5 minute survey to tell‚Ķ https://t.co/SsVgQzEKIc12 days ago
  • RT @AonRetirementUK: Great event, thanks for hosting @portfolio_inst. Inspired location too! https://t.co/we7Ou46ns312 days ago
  • Full house at our Portfolio Prepared event, Oliver Hamilton Illiquids specialist @AonRetirementUK discusses conside‚Ķ https://t.co/F0qPFPjUSP13 days ago
  • West Midlland Pension Fund‚Äôs Jill Davys: ‚ÄúI am reluctant to overpay for assets‚ÄĚ Assistant director of investments a‚Ķ https://t.co/YHtEIU5BSN15 days ago
  • Friday View: DWP plans ¬£1m fine for "reckless" sponsors - Veolia appoints actuary - TPR fines Smart Pensions - UK s‚Ķ https://t.co/9kUsw6mric18 days ago
  • RT @NewtonIM: Take 5 minutes to complete the @portfolio_inst ESG survey, which is part of its 'Raising Standards in ESG' initiative, and sh‚Ķ18 days ago
  • This months cover story: Carillion: Lessons for trustees ''The collapse of the construction giant raises questions‚Ķ https://t.co/L48HDqT0lB19 days ago
  • RT @PensionsSion: Portfolio Prepared? Join us and @portfolio_inst on 4th July 2018 to hear presentations from leading professional #trustee‚Ķ19 days ago
  • Breaking: DWP proposes ¬£1m fine for "reckless" DB sponsors https://t.co/7rsDaGgS5v #DWP #DBWhitepaper #TPR https://t.co/YQqy9Qr7tN21 days ago
  • Our latest Roundtable: Factor Investing ''Pursuing value, momentum, quality or low volatility strategies in bond an‚Ķ https://t.co/qugefevAN421 days ago
  • My week on Twitter ūüéČ: 2 Mentions, 3.3K Mention Reach, 5 Likes, 6 Retweets, 7.76K Retweet Reach. See yours with‚Ķ https://t.co/IZfviidt4H23 days ago
  • Friday View: Trustees feel the heat over climate change - bankers' pensions back in black - TPR suspends trustee -‚Ķ https://t.co/kUKa8QUF9w25 days ago
  • Increased regulatory oversight will be risk-based, TPR keyperson will meet schemes deemed riskier several times a y‚Ķ https://t.co/wUiKPGESaU27 days ago
  • Lesley Titcomb, TPR chief executive says change is on its way, the regulator will increase oversight between valuat‚Ķ https://t.co/Wu8Pv6TfqS27 days ago
  • Join us and @AonRetirementUK on the 4th of July at the luxurious Victorian Bath House featuring educational presen‚Ķ https://t.co/r1abr8Qls028 days ago

Friday View: 17 October 2014

Alternatives to fiduciary management: opening up the debate

By Patrick O'Sullivan
Friday 17th October 2014

Fiduciary management is on the rise in the UK after migrating from mainland Europe. As it grows in popularity with UK defined benefit schemes, the benefits and concerns of adopting FM is coming under greater scrutiny.

Fiduciary management can have a role, but this of course depends on the varying and myriad objectives of respective pension schemes. Growing column inches and marketing budgets dedicated to fiduciary management have begun to create a perception, among some trustees, that fiduciary management is a panacea to issues around the outsourcing of investment objectives and governance. However, reality suggests that there is rarely a simple answer to a complex question.

There are a number of¬†concerns around fiduciary conflicts if trustees engage in¬†fiduciary management¬†‚Äď both on¬†the issue of cost, investment strategy and¬†governance.¬†At Redington, we¬†have seriously explored entering fiduciary management, however, we have opted to remain fully independent and conflict-free despite fiduciary‚Äôs potential transformation for our business. It¬†is time to open this¬†debate¬†not just¬†on the merits of¬†fiduciary management, but¬†on the¬†full spectrum¬†of options available to trustees and scheme sponsors¬†which includes the traditional advisory model.¬†It¬†should not be simply¬†a question of¬†whether to take¬†the fiduciary route or not, for there is no¬†‚Äúoptimal‚ÄĚ level of¬†outsourcing¬†that can be uniformly applied to all pension schemes.

Fiduciary management cannot work without fully considering liabilities, keeping in mind that the ultimate purpose of setting an investment and risk management strategy is to ensure that, firstly, assets grow to a sufficient level to pay out liabilities as they fall due and, secondly, do so with as little risk as possible to protect member security. For trustees considering fiduciary management offerings, a big question is whether the provider is good at setting strategy and has a proven track-record. The provider’s skillset should not just lie in implementing strategy.

Alternatives to¬†fiduciary management¬†can mean the best of both worlds for trustees ‚Äď they get scale from providers, but¬†they also get¬†clear lines of independence (and no revenue¬†share) between asset allocator and asset¬†managers.¬†Trustees¬†also¬†have greater control over investment¬†strategy through their¬†objectives¬†which they set and¬†adapt.

The costs of some alternatives are also very attractive compared to fiduciary management fees when fund manager costs are added to the underlying asset management fees. For example, we are aware of an alternative model recently implemented for a sub-£200m scheme with a total all-in cost of 0.32% for asset management and consulting fees. This model is fully bespoke, real-time risk managed at the scheme level, highly capital efficient and diversified across market and actively managed return sources.

The market for alternatives to fiduciary management is evolving.¬†LGIM‚Äôs¬†recently¬†launched suite of delegated solutions has fuelled considerable debate within the industry.¬†LGIM has followed the path of a number of providers after engaging with trustees and consultants.¬†While the¬†LGIM solution is not suitable for all schemes, we¬†feel¬†it merits attention as it achieves the advantages and associated benefits of fiduciary¬†management¬†without¬†the¬†associated cost and conflicts.¬†This is not fiduciary management ‚Äď but rather an alternative solution that makes a¬†lot of sense for pension schemes¬†of a certain size¬†with an LDI mandate.

Ultimately, there cannot be a one-size-fits-all prescriptive approach. Instead, a holistic engagement where asset managers, trustees and advisers share an integrated strategy has proven to be successful. Each of our pension clients is better funded since we engaged in an integrated approach using a traditional advisory model. This means that discretionary responsibility has not been devolved and there remains independent, objective thinking on external managers assisted by the role of the adviser. We fully anticipate that fiduciary management might be the best choice in some specific circumstances. However, trustees and sponsors should at least be aware that many of the benefits of fiduciary management can be achieved without giving the keys away.

 

Patrick O’Sullivan is director, investment consulting at Redington¬†

 

0

Leave your comment

View our comments policy

Please login or register with us to leave a comment. It's completely free!