Pension funds and asset managers should agree multi-year contracts in exchange for lower fees, a network of pension funds, asset managers and corporates has suggested.
In a new report , FCLT Global, which advocates a long-term investment approach by pension funds and asset managers, provided 10 recommendations for setting up long-term investment mandates.
The recommendations included replacing directly terminable contracts with five-year arrangements linked to a fee discount. Currently, the fee discount is often subject to the scale of the mandate.
FCLT Global’s list also addressed the use of benchmarks that focused on the long term as a standard for absolute return funds.
The report suggested that asset owners should keep monitoring managers for up to three years following termination of contracts to determine whether cancellation had been a sensible decision.
Lars Dijkstra, chief investment officer of Dutch asset manager Kempen Capital Management, which is involved in the FCLT, underlined that long-term mandates affected the entire investment chain.
“If asset managers feel less rushed to achieve results quickly, then they will put less pressure for short-term profits on firms they are invested in,” he said.
According to Dijkstra, the report was not triggered by fee pressures or the trend towards contracts that can be cancelled on a daily basis.
“Several pension funds have been involved in the initiative and they support the recommendations,” he said.
Deutsche Asset Management to rebrand as DWS
Germany’s largest institutional asset manager is to rebrand as DWS, the company announced this week. It also laid out a new governance structure within the wider Deutsche Bank group.
The new name for Deutsche Asset Management – which runs roughly €231bn of assets for institutional investors in Europe, according to IPE data – will cover its institutional and retail businesses across active, passive and alternative product offerings.
The company’s Xtrackers and RREEF brands – for exchange-traded funds and real estate respectively – will remain, it said.
In addition to the rebrand, the company will operate within a German ‘GmbH & Co KGaA’ legal structure from the first quarter of next year. Deutsche said this would grant the asset manager “operational autonomy” while still giving Deutsche Bank the oversight it needs for regulatory compliance.
Nicolas Moreau, head of Deutsche AM, said: “We want to unlock the full potential of Deutsche AM to facilitate growth. Our future legal structure demonstrates the long-term commitment of Deutsche Bank to our business while giving us the operational autonomy to advance our growth strategy.”
Karl von Rohr, currently chief administrative officer at Deutsche Bank, will become chairman of the asset manager’s supervisory board, with other members to be appointed in the coming weeks.
Moreau is among a group of seven managing directors of Deutsche that will lead DWS. He will join CFO Claire Peel, COO Jon Eilbeck and CIO Stefan Kreuzkamp, as well as Nikolaus von Tippelskirch (chief control officer), Pierre Cherki (co-head of the investment group alongside Kreuzkamp), and Bob Kendall and Thorsten Michalik (co-heads of the global coverage group).
Liability hedging rises by more than a quarter
UK pension funds’ liability hedging activity increased by 27% between July and August, according to BMO Global Asset Management.
The asset manager’s quarterly liability-driven investment (LDI) survey reported £31bn (€33.6bn) worth of activity in the third quarter of 2017, up from £24.5bn in Q2.
Inflation hedging fell by 5% over the quarter, BMO added, to around £20.3bn.
Rosa Fenwick, LDI portfolio manager at BMO, said: “Although long-term interest rates dipped during the quarter, the focus on November’s base rate hike from the Monetary Policy Committee drove a recovery in long-term rates, which ended the quarter roughly unchanged.
“Hedging activity was dominated by de-risking trades, predominantly in the form of time-based trigger programmes rather than as a reaction to market levels.”