Commission recapture (CR) programmes, better known in the Anglo-Saxon world than in continental Europe, are an easy way to boost performance.

Here is an ideal opportunity for the multinational to co-ordinate a value-add activity across all its international pension funds, which is relatively simple, requires little involvement from the local organisation and has minimal risks attached to it. So what is the basic concept?

There are several brokerage organisations which have set up commission recapture programmes for pension funds. The idea being that the client instructs its investment managers to direct a certain amount of their trades through a select (but comprehensive) network of brokers, on a best execution" basis, and, when these trades are completed, the CR organisation then credits the clients with a predetermined percentage of the gross commissions channelled through the nominated brokers. Thus, an ideal way to reduce a pension fund's transaction costs - and with no fees! So what is the catch? Normally when pension fund managers action their trades through a broker, the commission charged on the transaction is effectively used to pay proprietary research from that broker - known as soft commissions. To put it more succinctly, if your fund has had to pay high trading costs, then other clients of that fund manager will benefit from the research the manager has purchased with "your" commission! The reason I make this point is that some fund managers are distinctly unhappy with the Commission Recapture idea, so it requires clear communication from the client as to what is expected!

So what key attributes should the multinational consider? First, ensure the programme is paying good commission refunds - something in the order of 60% of the gross. Second, review the proposed list of correspondent brokers to ensure they are top quality and that the managers are given an adequate choice. Third, look to receive cash refunds as quickly as possible - ideally monthly. Fourth, sit down with the CR organisation and agree precisely what reporting is required to monitor the programme. Finally, ensure the CR organisation is adequately staffed to run the programme, has no conflicts of interest (ie not a market maker) and is geared up to provide a quality service.

Given the potential portfolio restructuring that could occur after the Emu is launched, perhaps it is a good time to consider activating this programme.

Nevill Brooke is an adviser to international pension schemes"