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Myners lays down voluntary code

The long-awaited Myners report on UK institutional investment, commissioned by Chancellor of the Exchequer Gordon Brown, has called for greater professionalisation of pension fund trustees to ensure they are ‘familiar’ with the investment decisions over which they preside.
And the report, produced by Paul Myners, chairman of UK investment house Gartmore, also proposes trustees be paid for their services - in recognition of the importance of their work – investing assets, which, he notes, represent upwards of £800bn for the pensions of around 12m employees in the UK.
Trustees, Myners points out, while legally responsible for the funds, are in practice unable to take major decisions or challenge advice effectively due to lack of expertise.
In the report Myners also lambasts pension funds for overly investing according to peer group benchmarks: “This is inextricably linked to the pervasive herd-like behaviour that has been criticised in the UK and can be particularly prevalent in local authority pension funds.
However, Myners eschews regulation in favour of a voluntary approach to his recommendations.
This, he says, means that institutions will not be required to comply with the new investment principles, but obliged to say why and where they do not comply, should this be the case.
He warns though that should there be no change in the behaviour of UK pension funds then the government should legislate accordingly – with a review posited for two years time.
Myners also suggests that the diminutive size, profitability and resources of the current advisory market in the UK is ‘insufficient’ compared to the importance of the work carried out and the volume of assets being advised on.
“The result, despite these firms’ best efforts – to which I pay tribute – is a narrow range of expertise and little room for specialisation,” says Myners.
One suggestion he makes is that pension funds split actuarial and investment consulting contracts to prompt greater competition in the market. The Gartmore chairman also argues that broking commissions traditionally passed on by asset managers to their clients are subject to insufficient examination and should be recouped by the asset manager.
Myners also criticised the reluctance of investment managers to become more involved in the companies they invest in – arguing that there should be a clearer duty for fund managers to act in shareholders’ interests.
“I don’t accept that fund managers do actually challenge companies about their strategies. There is a need for engagement.”
The UK National Association of Pension Funds (NAPF) has welcomed Myners’ findings. Alan Pickering, NAPF chairman, comments: “The report is welcome not just for what it says but for what it leaves unsaid. We are delighted that a prescriptive approach is not being recommended and that the temptation to pursue a box ticking mentality for the investment process has been rejected.There is no viable alternative to a thoughtful and informed approach to pension fund investment.”

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