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Flexibility deters schemes from fiduciary management - KPMG

NETHERLANDS - Doubts about managers' ability to deliver flexibility prevent many Dutch pension funds from choosing fiduciary management, claims accountancy advisory firm KPMG.

Of the 80% of schemes which have fully contracted out their asset management, only one-third has a fiduciary manager, the consultancy found in its yearly survey of over hundred pension funds.

Furthermore, the subject is high on next year's agenda at only 20% of pension funds, pointed out Edward Snieder, head of pension advice at KPMG.

"Besides independent advice, a diversified investment portfolio and solid risk management, pension funds also require a tailor-made service and organisation structure.

"Doubts, about whether offered fiduciary management seamlessly links with the required flexibility, dominates at a large number of schemes."

That said, these doubts are not justified, according to Snieder, as, at present, an increasing number of fiduciary managers offer different fiduciary models, and can therefore fulfil specific requirements, such as the implementation of strategic policy, he made clear.

KPMG found pension schemes' boards want more consistency on the clarity and depth of reporting, as well as more transparency on the application of their own products by fiduciary managers.

"The objectivity that asset managers try to maintain towards their own products is putting a heavy burden on the definition of fiduciary managers," the consultancy said.

"It means that pension funds must blindly follow the asset manager, and must assume that the chosen products fit within the desired profile," it continued.

Another issue with many pension fund governors is how they can systematically monitor the performance of the fiduciary manager, according to KPMG, arguing "governors want certainty about the added value the fiduciary manager claims".

The KPMG survey showed 55% of pension funds have developed benchmarks for the performance of asset management.

Last year, KPMG reported almost half of the Dutch pension funds are considering transferring their investment management to fiduciary managers.

It cited "extra administrative and management burdens, due to increased complexity in investment management, as well as the lack of expertise", as the most important reasons for them to look at fiduciary management.

"Our impression is that the implementation of the new Pensions Act and pension fund governance rank higher on the schemes' priority list now," Snieder commented on the differing outcome of the recent survey.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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