EUROPE – European pension funds could make significant savings by paying attention to the rates they are charged on foreign currency transactions, according to consultants Mercer Investment Consulting and Record Currency Management.
"Pension funds often pay little attention to foreign currency transaction costs, and better management of these transactions can enhance returns. Plan sponsors are often unaware of the surprisingly high volume of foreign currency trading, which compounds the problem of uncompetitive rates," says Mark Walker, head of the European custody group at Mercer Investment Consulting.
Neil Record, chairman and chief executive of Record Currency Management, adds: "Excess costs reduce the fund's value unnecessarily. Pension funds can often obtain significant savings by simply opting to monitor the foreign currency transactions made on their behalf."
By paying careful attention to foreign currency management, Walker believes that pension schemes could make annual savings of 20 basis points or more.
To tackle the issue, the two consultancy groups have formally launched a joint agreement to market a currency audit service enabling pension scheme trustees to gain precise information about the foreign exchange rates they currently pay. Under the agreement, Mercer will now provide a consultancy service to pension funds using Record’s database and foreign exchange experience.
It is hoped the currency audit and transaction monitoring provided by the two entities will be used by pension funds in the UK, Europe, the US and Australia enabling them to reduce their foreign currency costs.