UK - The London Borough of Barnet is preparing to tender for global custodian services for its £481m (€546m) pension scheme for the first time.
A report presented to Barnet’s pension fund committee at the end of July requested approval to start a tender search for a custodian, as the appointment would be “in accordance with best practice”.
The pension fund is managed on a balanced basis - excluding property and cash - by two external fund managers: Schroder Investment Management and Newton Investment Management.
The proposed terms of the tender outlined in the report to the pension committee suggested the appointed manager would be required to handle administration issues such as the collection of dividends or interest, notification of voting rights and dealing with tax returns or reclaims, while holding all the financial assets including the cash.
Under existing custody arrangements, revealed in the report, Schroders delegates its custody requirements to JP Morgan who invoice the council to the tune of approximately £18,000 a year in fees, while Newton employs an in-house custodian, through its parent group BNY Mellon, with custodian fees included in the overall admin fees charged to the council. Iit is estimated the custody portion equates to between £17,500 - £20,000 a year.
In contrast, the committee was told the appointment of a separate custodian would cost the council around £30-35,000 a year, but would increase controls over cash, including clear segregation from council money, and would improve the efficiency of fund administration and reporting for accruals, trade settlements, tax reclaims and income through an online system.
Additional documents published at the pension committee meeting also showed Barnet council is considering a new investment strategy for the pension fund as the estimated funding level of the scheme dropped from 71% in March 2007 to around 50% by March 2009.
At the end of the first quarter, the fund had an asset allocation of 27% in UK equities, 32% in overseas equities, 26% in bonds and index-linked assets, with 4% in property and the remainder in cash.
The last funding strategy statement for the fund was reviewed and approved by the council in June 2008. However, following the submission of a background paper on investment strategy by its adviser HSBC Actuaries and Consultants at the end of last month, the committee was recommended to establish a working group to liaise with HSBC “on developing a new investment strategy for the committee to consider at a future meeting”.
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