Pension fund trustees must bear some responsibility for failing to get value for money and good results from asset managers and consultants, according to the chair of trustees at the UK’s £3bn (€3.4bn) Merchant Navy Officers Pension Fund (MNOPF).
Commenting on the UK regulator’s study on the asset management industry, Rory Murphy said the Financial Conduct Authority’s (FCA’s) report was “detailed and insightful in its analysis of the weaknesses of the asset management industry” but that there are plenty examples of managers and consultants or advisors who deliver “great results and good value for money”.
“We know this because we’re a pension fund benefiting from both,” he said.
The FCA has been critical of the investment consultancy sector as part of its asset management market study, and two weeks ago confirmed it was planning to refer the sector for a formal competition enquiry. It has registered concerns about pension scheme trustees’ lack of experience and resource, leading to a high reliance on consultants.
With respect to the asset management industry, the regulator wants to see standardised templates developed to report costs and charges to all UK institutional investors.
MNOPF’s Murphy shifted the focus to trustees, however, saying they needed to “step up and play their part”.
He said that “having clued up trustees and the right governance structure enabl[ed] us to identify and hire managers and advisors who are delivering great results, on our terms.”
Responsibility for failure lay partly with managers and advisers, but investors, pension fund trustees in particular, must also take some of that responsibility, he said.
Murphy suggested the notion of ‘buyer beware’ may be appropriate.
“[I]f you don’t do your homework, know exactly what you want and why you want it, if you don’t negotiate a good price and get some form of warranty, then you have to share some of the responsibility if problems occur,” he said. “We do all that when buying a house or a car and the same approach should be taken by pension funds.”
“We fully support the FCA in driving best practice, but what the regulator is looking to achieve is already being delivered – certainly in our case,” he said.
The key, according to Murphy, is for the asset management industry’s clients to ensure they are identifying and demanding best practice and, if necessary, “to vote with their feet”.
Although relatively small, MNOPF is a well-respected UK pension fund that has taken some innovative and influential decisions over the past several years. This includes adopting a delegated chief investment officer structure in 2010, appointing what was then Towers Watson, and setting up its own insurance company to transfer longevity risk to a re-insurer.
The pension fund has won five IPE awards. Most recently it was one of three winners of IPE’s Gold Award for best long-term investment strategy in 2016.