The £500m (e803m) Caterpillar pension fund has struck a new performance-related fee structure with its advisor Mercer Investment Consultant. The new arrangement covers both manager selection and strategic advice and is in response to the Myners Review recommendation that trustees should consider a formal assessment of their consultants.
Andy Green, Mercer’s consultant to the Caterpillar plan explains that Caterpillar wanted him to act more as a member of their pensions team rather than just offering advice. “The idea was to ensure my goals and their goals were more aligned. That way the consultant is more involved in the decision-making process and therefore more accountable. It is logical then that performance-related fees become a possibility,” he comments.
Green adds the new structure allows Caterpillar to measure the success of his recommendations more closely and pay fees accordingly. He says they have agreed a benchmark against which both his manager recommendations and strategic advice will be measured. “It seems pretty basic but it is a brand new concept and we need to wait and see how it develops.”
However, Green doesn’t think it will suit all pension funds as some may not be as willing to see so much consultant involvement. “It is unlikely to become a standard structure we will employ, since many trustees are reluctant to let us get so involved in the actual decision-making process. But it adds a new dimension to our work,” he says.
Mercer is talking to a number of other pension fund clients about introducing a similar structure into their relationship.