S&P unveils UK pension fund rating
UK – Standard & Poor’s is to launch three defined benefit pension rating products in the UK in May, characterised by a star rating system of credit risk.
The company says it is responding to the Myners Report, which called for trustees to become better informed.
The services are designed to assist trustees deal directly with specific key decisions, S&P said. The products would focus on firstly the funding and sponsor side of funds – this is where the star system comes in. Then there is a measure of pension management performance. These two services would be paid for by trustees. Last is an assessment of asset managers, paid for by the asset managers themselves.
“In a nutshell what we are doing is a unique package of services,” said Jim MacLachlan, S&P’s director of pension services. “This is a liability-based product.”
The pricing of two services aimed at trustees would depend on factors such as the complexity of the scheme. The asset manager rating system would be priced according to factors such as type of asset class. S&P would not be drawn on specific pricing, except to say that a typical asset manager may have to spend sums in the “tens of thousands of pounds” to get rated.
S&P says the system “creates enormous opportunities” for asset managers. “It allows asset managers to present themselves independently to trustees,” MacLachlan said. The idea is that it could also become a tool used by investment consultants.
Asset manager ratings will take into account the financial position of the firm as well as factors such as high profile staff leaving.
The services would be run by a separate S&P division with eight staff, though it would be able to draw on the corporate ratings that S&P regularly produce.
The star rating system would be provided to trustees and not initially made public, though S&P hopes the ratings would become known as a way to help communication between trustees and members.
S&P stressed its independence from sponsors, trustees, asset managers and other scheme advisers. It has spoken to the Department of Work and Pensions, the Treasury and the Occupational Pensions Regulatory Authority. “Our impression is that they welcome that they are tools for trustees,” MacLachlan said.
He added that S&P had used data from four actuarial firms to help construct the products. "We’ve been working with them right from the start,” MacLachlan said, adding that S&P would make use of data from State Street’s performance-measurement arm WM Co.
The asset manager rating service could be launched in continental Europe, for example using WM’s Dutch database.
S&P’s new pension service:
Defined Benefit Assessment Service (DBAS)
Assesses credit risk faced by scheme members, based on the financial strength of the sponsor, scheme solvency, contribution regime and scheme maturity. Expressed as a “star” rating.
Pension Scheme Management Process Assessment (PMPA)
Enables trustees to assess the likelihood of investment objectives meeting fund solvency requirements. Also looks at asset allocation and overall efficiency. Produced with WM.
Asset Manager Assessment Service (AMAS)
Assessment of institutional asset management companies and their capabilities. Analyses stability, ‘corporate attributes’ and investment strengths at the asset class or mandate level. Produced with WM.
“We are delighted that Standard & Poor’s has chosen WM Co. to contribute to these landmark services for UK pension funds at a time when transparency of information is increasingly vital,” said Michael Walsh, managing director of WM Co.
”This initiative will enable scheme sponsors, members and advisers to benefit from a transparent and impartial assessment of the investment management of pension schemes.”